Why Rent Expense is a Debit
Rent expense (and any other expense) will reduce a company’s owner’s equity (or stockholders’ equity). Owner’s equity which is on the right side of the accounting equation is expected to have a credit balance. Therefore, to reduce the credit balance, the expense accounts will require debit entries.
Example of Rent Expense as a Debit
If a company pays $800 for the current month’s rent, the company’s assets and its owner’s equity will decrease. To decrease an asset such as Cash, the company will credit the Cash account for $800. Since every entry must have debits equal to credits, the company will need to debit another account for $800. In this case, the account is Rent Expense. (Eventually the debit balance in the Rent Expense account will be transferred/closed to the proprietor’s capital account or to a corporation’s retained earnings account.)
Why Service Revenues is a Credit
Service revenues (and any other revenues) will increase a company’s owner’s equity (or stockholders’ equity). Owner’s equity which is on the right side of the accounting equation is expected to have a credit balance. Therefore, to increase the credit balance, the revenues accounts will have to be credited.
Example of Service Revenues as a Credit
If the company earns and receives $300 for providing a service, the company’s assets and owner’s equity will increase. The asset Cash will be increased with a debit of $300. Therefore, another account will need to be credited. In this case Service Revenues will be credited for $300. Service Revenues is a temporary account that will eventually be closed to the owner’s equity account.
