In this super short video I’m going to
show you the easiest way to remember debits and credits in accounting. [Music] Hey there
welcome back to accounting stuff I’m James
and in this video I’m going to show you my number one accounting basics hack.
This simple trick will help you to effortlessly identify and distinguish
between debit and credit accounts and here it is… DEALER D E A L E R DEALER Now if you’re subscribed to my channel
then you might have heard me mention this quite often… dealer in dealer the ‘a’ in dealer the ‘e’ in dealer dealer Okay so quite often is a bit
of an understatement. I actually use this all the time
here’s how it works [Music] Dealer is an acronym that stands for dividends
and revenue. All right so what does that mean?
Well as a general rule in accounting debits always go on the left
and credit always go on the right. So how this works is that
on the left hand side we have dividends expenses and assets
representing normal debit accounts that means that debits increase
these balances and credits decrease them.
On the right hand side we have liabilities equity and revenue
these are normal credit accounts that means that credits increase them
and debits decrease them D E A L E R DEALER This is it my secret weapon.
But before you click away I want to share one more knowledge bomb
that’ll help you understand the true meaning of
debits and credits in accounting. After all what use is a sword
if you don’t know how to wield it?? I think that’s an expression… Anyway… here it is
Every financial transaction involves a flow of economic benefit
from a source to a destination. Credits represent the sources
that economic benefit can flow from where as debits represent the destinations
that economic benefit can flow to. What does any of this
have to do with dealer? I’ll show you right now.
I want you to imagine that you own a business and your business
holds some cash. Where could this cash have come from?
What are the possible sources? Well broadly speaking there are
only three places. You could have borrowed it from
a third party like a bank. You as the owner could have invested
it into the business out of your own pocket.
Or you could have earned that cash by selling a product or service.
Liabilities, equity and revenue. These are the three possible
sources of economic benefit. On the flip side what could your
business spend this cash on? Well it could distribute it back
to the owners of the business that would be you in this situation.
It can be used to pay your bills like your rent or employees salaries.
Or you could use it to buy new assets like a laptop to work on.
In other words dividends, expenses and assets.
The three destinations of economic benefit. [Explosion] If you’d like to learn how and why this works
then I recommend you check out my debits and credits video over here
and if you’d like to get in some practice using dealer then here
are five worked examples you can try out for yourself.
Don’t forget to subscribe for more accounting tips and tricks
and now I’ve got to pick up all these cards.