Accounting starts from the understanding of the rule on debit and credit. But what is really a debit and a credit of accounting transaction?
What is debit and credit?
The term "Debit" refers to the left side of an account whereas the term "Credit" refers to the right side. When both the left side and right side of an account are totaled and the smaller amount is deducted from the of the higher one, the remaining amount is referred to as the "Balance of an Account".
What is NORMAL BALANCE
Every account has its normal balance. Meaning, the balance it which a particular account would increase. For example, Cash has a normal balance of debit because it will increase when debited and decrease when credit.
There are those who think that Debit always means increase and credit always means decrease. This article will clarify this mistake. Not all debits means increase and not all credits will mean decrease. The status of whether the account will decrease or not is depending on what particular account is being debited or credited for that matter.
Effects of transactions
ACCOUNT NORMAL BALANCE BALANCE INCREASED BY BALANCE DECREASED BY
Asset Debit Debit Credit
Liability Credit Credit Debit
Equity Credit Credit Debit
Revenue Credit Credit Debit
Asset Debit Debit Credit
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