Credit and Debit of accounts

High School ・Business ・APA ・2 Sources

The business transactions are taken down in two columns; the credit is on the right-hand side, while the debit is on the left-hand side. A debit record means that the firm's assets have augmented, liabilities have diminished, expenses have shot up and equity has reduced. In an accounting record, it is placed on the left.
A credit entry on the other side indicates shows that equity or liabilities have propagated, expenses or assets have declined. A credit entry is normally entered on the right side of an account.

Usage of Debit and Credit

Anytime a transaction exists, the two sides are usually affected, the debit and credit entry. The number of accounts that are involved in each transaction has no upper limit, but the minimum is always two accounts. The sum of the credit and debit entries must always be equal so that the financial transaction can be so that the transaction qualifies to be balance. If the debit and the credit entries fail to balance, then it is impossible to generate other financial statements. This implies that the credit and debit entries in the two column are critical for the general control over the accuracy of accounting ("Financial Accounting and Reporting Standards for Private Entities," 2006).
There might be a substantial about the inherent significance of credit and debit. For instance, if the cash is debited it implies that the cash the organization has will increase. However, if the account payable account is debited, it will mean that the number of creditors decreases. This situation arises from the fact that credits and debits different effects across various categories of accounts that include:
• Equity account whereby an entry that is made on the credit indicates that equity has decreased while an entry on the debit side indicate that equity declined.
• Obligation account whereby an entry on the credit side raises the obligation amount but an entry on the debt side decreases the amount owed to outsiders.
• Asset account whereby a decreases is showed by a credit entry while an entry on the debit side tend to increase the amount
The reason for this obvious reversal of the use if credits and debit are caused by the accounting formulae from which lays the ground for all the accounting transactions.
This accounting equation implies that a company or an individual has assets they are bought using equity or liability. This means that one must exist before the other is acquired. Consequently, when a transaction is created with a credit or debit, you are usually increasing the equity or liabilities account while increasing the assets. Some exceptions exist for instance decreasing one asset account while increasing another asset account.
In the bookkeeping equation, assets represent the economic resource that is generated by the past resources and has the capacity of bringing economic benefit to the company in the future they include machinery, plant, and buildings and cash. Liabilities are financial obligations that arise from the firm's past activities that are expected to be redeemed in the future. Liabilities can either be contingent liabilities, non-current liabilities (those that result from activities outside the normal business activities) and current liabilities (a debt that arises from the normal trading activities. Capital is the owner contribution to business; it is usually the remainder after payment of claims (Weil, 2017).


Financial Accounting and Reporting Standards for Private Entities. (2006). Accounting Horizons, 20(2), 179-194.
Weil, R. (2017). Financial Accounting (1st ed.). [Place of publication not identified]: Cengage Learning.

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