JMLABS INSTITUTE ONLINE

lecture 2C2B:
Once you have estimated your startup cost for your new business,
you must decide what your sources of cash will be.  Owners often 
put some of their own cash into the business as owner's equity and borrowed money as accounts payable.

acct no.		acct. name			debits		credits
100			CASH				$22,000		$12,000
							  $8,000			$0
							$50,000			$0
110			ACCT.REC.				$0			$0
120			VEHICLES			$12,000			$0
							  $8,000
							  	$0			$0
130			ACCT. PAY.			    	$0		  $8,000
										  $1,000
			  							  $8,000
140			EQUIPMENT			 $1,000 
160			INVENTORY				$0			$0
220			OWNER'S EQUITY		       	$0		$50,000	
260			LABOR			    	$0		 	$0
270			PARTS			       	$0		 	$0

Credit ACCT.PAYABLE  $8,000 and debit CASH $8,000.  Next, we'll credit OWNER'S EQUITY and debit CASH again, this time for $50,000.  Money from a loan is put into our CASH account.

When we make a payment on our loan, ACCT.PAYABLES, we credit CASH and debit ACCT.PAYABLE.  Money (credit) is taken from CASH to reduce our loan.  Recall that to reduce a liabilty account we debit it.

Now each time we receive payment on our ACCT.RECEIVABLES account we will reduce our assets by crediting this account and also we will correspondingly debit CASH to increase our assets.

One way of looking at this all is to think, "Credits is where the money comes from" and "Debits is where it is placed."

-JML