🎯 What is DEBIT AND CREDIT in Accounting?

 🎯 What is DEBIT AND CREDIT in Accounting?

👍 In accounting, debit and credit are the two fundamental terms used to record business transactions in the double-entry system. Every transaction affects at least two accounts, where one side is debited and the other is credited, ensuring that the accounting equation (Assets = Liabilities + Equity) always remains balanced.

DEBIT AND CREDIT in Accounting

👉 A debit (Dr.) entry generally represents an increase in assets or expenses and a decrease in liabilities, equity, or income. For example, when a business purchases equipment for cash, the equipment account (an asset) is debited because it increases, while the cash account is credited since cash decreases.

👉 On the other hand, a credit (Cr.) entry usually represents an increase in liabilities, equity, or income and a decrease in assets or expenses. For instance, when a company takes a bank loan, the cash account is debited (cash increases), while the loan payable account is credited (liability increases).

✨ Debits are always recorded on the left side of an account, while credits are recorded on the right side. This left-and-right positioning is a universal rule in accounting, regardless of the account type. The total debits must always equal total credits for every transaction, ensuring accuracy and preventing imbalance in financial statements.

👍 To simplify:

👉 Debits increase: Assets, Expenses, and Losses.

👉 Credits increase: Liabilities, Equity, and Revenue.

 

✨ Understanding debit and credit is essential for preparing financial statements such as the balance sheet, income statement, and cash flow statement. They provide a systematic way to track financial activities, detect errors, and maintain transparency in business records.

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