Summit Tax & Accounting, LLC 3040 N. University Decatur, Illinois 62526 Phone: (217) 877-6766 Fax: (217) 875-4647 Email: [email protected] Website: www.SummitTaxAccounting.com

February 2014

PowerChurch: Debit or Credit???

Does this picture remind you of anyone?? Choosing between debits and credits when making accounting entries can be confusing!

Deciding whether to use a debit or credit in an entry is easier when you understand how a debit or credit will affect the account to which you are making the entry.

Every chart of account line item has a normal debit balance or a normal credit balance.

See the chart below:

 Balance Sheet Normal Balances  Assets – Debit (Debit adds; Credit decreases)  Liabilities – Credit (Credit adds: Debit decreases)  Equity – Credit (Credit adds: Debit decreases)

 Income Statement Normal Balances  Expenses – Debit (Debit adds; Credit decreases)  Income – Credit (Credit adds; Debit decreases)

The first thing you must determine is: Are you going to make the balance in the line item higher (adding)? Or, are you going to make the balance in the line item lower (decreasing)?

Once you have answered the above question, plug your entry into the chart shown earlier. Let's use the example of making a journal entry for a bank service charge.

1. You are decreasing the balance in an asset (your checking account) 2. You are increasing the balance in an expense (Bank Fees)

 Balance Sheet – Normal Balances  Assets – Debit (Debit adds; Credit decreases)  Liabilities – Credit (Credit adds: Debit decreases)  Equity – Credit (Credit adds: Debit decreases)

 Income Statement – Normal Balances  Expenses – Debit (Debit adds; Credit decreases)  Income – Credit (Credit adds; Debit decreases)

Your journal entry will be: Credit Checking Debit Bank Fees Expense

To make the entry in PowerChurch, go to Accounting-Fund Accounting-Enter Transactions

Complete the entry.

Save and post.

Next month you will learn how to setup and use repeating transactions. If you need to make the same journal entry often..... repeating transactions is a wonderful tool!

As always, if you need any help with your PowerChurch software you are more than welcome to contact us at Summit Tax & Accounting, LLC. No question is too small or too big. We are here to help you!

(Fees applied on an hourly basis. Churches are billed at a discounted rate.)