When money flows into a bucket, we record that as a debit (sometimes accountants will abbreviate this to just “dr.”)įor example, if you deposited $300 in cash into your business bank account:Īn accountant would say we are “debiting” the cash bucket by $300, and would enter the following line into your accounting system: Account
Debit credit machine full#
Recording what happens to each of these buckets using full English sentences would be tedious, so we need a shorthand. When your business does anything-buy furniture, take out a loan, spend money on research and development-the amount of money in the buckets changes. One bucket might represent all of the cash you have in your business bank account (the “cash” bucket)Īnother bucket might represent the total value of all the furniture your business has in its office (the “furniture” bucket)Īnother bucket might represent a bank loan you recently took out (the “bank loan” bucket) Think of these as individual buckets full of money representing each aspect of your company. Under this system, your entire business is organized into individual accounts. Most businesses these days use the double-entry method for their accounting.
In a nutshell: debits (dr) record all of the money flowing into an account, while credits (cr) record all of the money flowing out of an account.
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