AuthorTopic: PLZ help, accounting question
howardthehobo
@2004-09-09 08:07:16
I know this is a stupid question, but I want to make sure that I understand it.

When we say that debit to PPE and credit to Cash for purchasing a building, this means that we add value to PPE and decrease value to cash. Right?
mmax
@2004-09-09 08:36:34
Hi there, are you from level 1? I've a little experience in basic accounting. I think when we debit, we reduce the value.
howardthehobo
@2004-09-09 22:03:48
Thanks.
suanne
@2004-09-11 17:20:38
There're 2 ways in using debit and credit in accounting, debit doesn't necessarily means that it decrease the value. You'll have look at it from the view of Balance Sheet items and Profit & Loss items.

Balance Sheet:-
Assets - Debit
Liabilities - Credit

Profit & Loss:-
Expenses - Debit
Income - Credit

Take the acquiring of building for example, it's an Asset on BS, thus you Debit PPE, and Credit whatever means of financing you have used to buy it.

Hopes this helps.
mmax
@2004-09-11 19:45:29
oh, I guess suanne's correct .. I'll have to read up on this ..
GotMineAlready
@2005-05-23 02:26:13
A debit will increase an Asset account & decrease a Liability or Owners Equity account. (B/S)

A credit does the opposite ... decreases an Asset account & increase a Liability or Owners Equity account. (B/S)

In the case you mentioned, both accounts appear under Assets ... you're decreasing cash (so credit) and increase plant/prop/equip (so debit).

I/S works a bit differently.

jakal
@2005-05-24 13:30:05
The best way to deal with accounts is to follow the 3 golden rules. Accounts are of 3 types Personal, Real and Nominal.

Rules:-

1) Personal Account:- Debit the receiver ..Credit the Giver.
2) Real Accounts:- Debit what comes...Credit what goes out.
3) Nominal Account:- Debit all expenses and losses...Credit all incomes and gains...

In the case mentioned above, PPE and Cash are real accounts...since PPE is coming in, debiting it will increase your asset, but at the same time cash is going out, so crediting it will decrease your asset thereby satisfying the double entry system of accounting.
jinmilken
@2005-08-29 17:26:47
HI,guys

Now I am studying the financial accounting. My teacher tell us in the balance sheet if u generate more cash whatever it comes from LTD or current liability, which is good for business. But in my opinion, even u are more liquid in cash, u still have to pay interest for ur debt that means u takes more risk to run ur business. who can help me for this question???
hory
@2005-08-30 12:48:39
I DONT QUITE UNDERSTAND YOUR Q, HOWEVER ANY COMPANY NEEDS SOURCES OR FINANCING FROM LTD OR CL, GENERALLY THE SHORT TERM IS USED TO FINANCE WORKING CAPITAL REQUIREMENTS AND LTD TO FINANCE EXPANSIONS, SO TO CONCLUDE IF THE COMPANY NEEDS TO ACQUIRE DEBT BECUASE OF LIQUIDITY PROBLEMS, THEN WILL HAVE TO PAY FOR THE COST OF BORROWING.
srinooo
@2005-09-14 13:57:46
That is how I would look at it. debit meaning-increase in PPE, credit meaning-decrease in cash
srinooo
@2005-09-14 14:01:19
Suanne has put it right. in the case of P/L statements it is the opposite

CFA Discussion Topic: PLZ help, accounting question

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