Core Accounting Entries: Debits and Credits Illustrated

Posted on Mar 29, 2025 in Accounting and Finance

Recording Financial Transactions

Sales and Customer Receipts

• Sales Transaction:
  Debit: Banks, Customers
  Credit: Sales, VAT Payable
• Document Signing (Notes Receivable):
  Debit: Notes Receivable
  (Implied Credit: Accounts Receivable/Sales)
• Remaining Client Balances (Open Account):
  Debit: Accounts Receivable
• Total Sales Recognition:
  Credit: Sales
• Payment Received (Notes Receivable):
  Debit: Bank/Cash
  Credit: Notes Receivable
• Payment Received (Client Balance):
  Debit: Bank/Cash
  Credit: Accounts Receivable
• Sales Return:
  Debit: Sales Returns and Allowances
  Credit: Accounts Receivable / Notes Receivable
• Opening Customer Account (New Sale):
  Debit: Accounts Receivable
  Credit: Sales
• Total Sales Summary:
  Credit: Sales
• Sales Amount Recognition:
  Credit: Sales (only)

Purchases, Inventory, and Supplier Payments

• Inventory Purchase:
  Debit: Inventory (Store), VAT Creditable
  Credit: Suppliers, Bank
• Cost of Goods Sold (COGS):
  Debit: Cost of Sales
  Credit: Inventory (Store)
• Payment for Document Payable:
  Debit: Document Payable
  Credit: Bank
• Payment via Check (Supplier):
  Debit: (Implied: Accounts Payable/Expense)
  Credit: Bank
• Signing Letters Payable:
  Credit: Letters Payable
• Amount Owed to Suppliers (e.g., XXXX SA):
  Credit: Accounts Payable – XXXX SA
• Merchandise Transfer (Cost Recognition):
  Debit: Cost of Sales
  Credit: Inventory (Store)
• Opening Supplier Account (New Purchase):
  Credit: Suppliers
• Merchandise Purchase:
  Debit: Inventory (Store)
• Defective Merchandise Return:
  Debit: Suppliers
  Credit: Inventory (Store)
• Total Payment/Deposit to Supplier:
  Debit: Suppliers

Asset Acquisition and Management

• Acquisition of Sales Equipment:
  Debit: Sales Equipment
• Acquisition of Administrative Items:
  Debit: Administrative Supplies/Equipment
• Payment for Assets (Check):
  Credit: Bank
• Remaining Balance (Asset Purchase):
  Credit: Accounts Payable / Creditors
• Cash Management:
  Debit/Credit: Cash (Safe)
• Acquisition of Transportation Equipment:
  Debit: Transportation Equipment
• Land Acquisition:
  Debit: Land
• Building Acquisition:
  Debit: Buildings
• Investment Activity:
  Debit: Investments
• Investment Income Received:
  Debit: Bank/Cash
  Credit: Investment Income / Financial Products
• Office Equipment Purchase:
  Debit: Office Equipment

Liabilities and Equity

• Bank Loan Received:
  Debit: Bank
  Credit: Bank Loans Payable
• Initial Capital Contribution:
  Debit: Bank, Other Assets
  Credit: Capital
• Mortgage for Property Acquisition:
  Credit: Mortgages Payable
• Opening Creditor Account:
  Credit: Creditors
• Capital Withdrawal:
  Debit: Capital / Drawings
  (Implied Credit: Cash/Bank)

Expenses and Prepayments

• Rent Deposit (Guarantee):
  Debit: Deposit Guarantee
• Advance Prepayment (Income):
  Debit: Prepaid Expense / Advance Payment
• Payment for Deposits/Prepayments:
  Credit: Bank
• Advertising Contract (Inauguration):
  Debit: Advertising Expense / SG&A
  Credit: Bank / Notes Payable
• Pre-operating / Organization Costs:
  Debit: Pre-operating Expenses / Organization Costs
  Credit: Various Creditors / Bank
• Early Payment (Prepayment):
  Debit: Prepayments
• Accident Costs:
  Debit: Accident Costs / Expense
  Credit: Sundry Creditors (for deductible/unpaid portion)
• Sales Wages and Commissions:
  Debit: Sales Wages and Commissions Expense (1)
• Administration Salaries:
  Debit: Administration Salary Costs (2)
• Tax Liability Accrual (ISPT, SS, IMSS, SHCP):
  Credit: Taxes Payable
• Advance Payment on Purchases Request:
  Debit: Advance to Suppliers
  Credit: Bank (only)

Other Transactions

• Bank Total Summary:
  Debit/Credit: Banks (Total To)
• Sundry Debtors Entry:
  Debit: Sundry Debtors
• Guarantee Deposit (Escrow):
  Debit: Guarantee Deposits
• Bank Deposit Receipts:
  Debit: Bank (only)

Value Added Tax (VAT / IVA)

• VAT Payable (Sales):
  Credit: VAT Payable (Moved VAT)
  Note: Recorded with sales. Liability arises when charged, even if not yet collected.
• VAT Creditable (Purchases):
  Debit: VAT Creditable
  Note: Recorded with purchases. Becomes creditable when payment is made (Paid VAT) or upon receiving credit (Unpaid VAT).