ACH Credit vs ACH Debit \When you’re processing an ACH transaction, you’re sending or receiving electronic payment data across the ACH Network. Liability and revenue accounts are increased with a credit entry, with some exceptions. Here’s an entry to purchase $10,000 of inventory on credit on April 1st: Credit #6000 Accounts payable $10,000 (increase), (To record purchase of inventory on credit). Here’s the entry: Credit #8000 Common stock $1,000 (increase), Credit #8100 Additional paid in capital $6,000 (increase), (To record cash payment received for issuance of stock). Credit #8000 Common stock $1,000 (increase) Credit #8100 Additional paid in capital $6,000 (increase) (To record cash payment received for issuance of stock) Now, you see that the number of debit and credit entries is different. Debit card payments reduce your checking account balance, and are considered a use of cash. A journal is a record of each accounting transaction, listed in chronological order, and accountants post activity using a journal entry. The rules governing the use of debits and credits are as follows: All accounts that normally contain a debit balance will increase in amount when a debit (left column) is added to them, and reduced when a credit (right column) is added to them. Let’s assume that, on April 3rd, a company increases common stock by $1,000 and additional paid in capital by $6,000 when it issues stock for $7,000 in cash. Assets are resources used to produce revenue, and they are increased with a debit. The expense account is increased with a debit, and the liability account is increased with a credit. As ACH industry veterans, we help thousands of businesses connect to the fast-growing ACH Network every day. This entry increases inventory (an asset account), and increases accounts payable (a liability account). If a transaction were not in balance, then it would not be possible to create financial statements. For example, if an asset account which is expected to have a debit balance, shows a credit balance, then this is considered to be an abnormal balance. This debit and credit cheat sheet will help you understand how to post transactions to each type of account: The easier way to remember the information in the chart is to memorize when a particular type of account is increased. In other words, these accounts have a positive balance on the right side of a T-Account. It is positioned to the right in an accounting entry. Whenever an accounting transaction is created, at least two accounts are always impacted, with a debit entry being recorded against one account and a credit entry being recorded against the other account. The totals of the debits and credits for any transaction must always equal each other, so that an accounting transaction is always said to be "in balance." When one of these transfers occurs, it’s known as an ACH Credit or ACH Debit. Notice I said that all “normal” accounts above behave that way. The data in general ledger is reviewed and adjusted, and used to create the financial statements. When you swipe your card at an ATM, you’re decreasing the cash balance. Credit cards charge high interest rates, and you should limit your spending. Part of that system is the use of debits and credit to post business transactions. Here are the components of a balance sheet: The components are connected by the balance sheet formula: The formula is used to create the financial statements, and the formula must stay in balance. This means that asset accounts with a positive balance are always reported on the left side of a T-Account. All credit card issuers offer perks, but don’t let that potential benefit determine your use of credit. Equity accounts. Asset and expense accounts are increased with a debit entry, with some exceptions. The following bullet points note the use of debits and credits in the more common business transactions: Sale for cash: Debit the cash account | Credit the revenue account, Sale on credit: Debit the accounts receivable account | Credit the revenue account, Receive cash in payment of an account receivable: Debit the cash account | Credit the accounts receivable account, Purchase supplies from supplier for cash: Debit the supplies expense account | Credit the cash account, Purchase supplies from supplier on credit: Debit the supplies expense account | Credit the accounts payable account, Purchase inventory from supplier for cash: Debit the inventory account | Credit the cash account, Purchase inventory from supplier on credit: Debit the inventory account | Credit the accounts payable account, Pay employees: Debit the wages expense and payroll tax accounts | Credit the cash account, Take out a loan: Debit cash account | Credit loans payable account, Repay a loan: Debit loans payable account | Credit cash account.

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