1) Accounting transactions are recorded with equal and opposite debit and credit amounts to maintain the balance sheet equation of Assets - Liabilities = Capital.
2) Increases to asset accounts are recorded as debits, while increases to liability and capital accounts are recorded as credits.
3) The rules of debits and credits ensure the account balances total to the accounting equation and give rise to specific rules for how increases and decreases in different account types are recorded as debits or credits.
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1) Accounting transactions are recorded with equal and opposite debit and credit amounts to maintain the balance sheet equation of Assets - Liabilities = Capital.
2) Increases to asset accounts are recorded as debits, while increases to liability and capital accounts are recorded as credits.
3) The rules of debits and credits ensure the account balances total to the accounting equation and give rise to specific rules for how increases and decreases in different account types are recorded as debits or credits.
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1) Accounting transactions are recorded with equal and opposite debit and credit amounts to maintain the balance sheet equation of Assets - Liabilities = Capital.
2) Increases to asset accounts are recorded as debits, while increases to liability and capital accounts are recorded as credits.
3) The rules of debits and credits ensure the account balances total to the accounting equation and give rise to specific rules for how increases and decreases in different account types are recorded as debits or credits.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
Dual aspect concept in accounting implies that every accounting
transaction would be expressed by a debit amount and an equal and opposite credit amount. Thus, the rule that for each transaction debit amount must equal the credit amount has absolutely no exception. The equality of debits and credits may be expressed in the form of an equation: Debit = Credit In the previous article we discussed accounting equation: A-L = P i.e., Assets-Liabilities = Proprietor's Funds or Capital If each account was to be considered in isolation it would make no difference whether increases were recorded on the debit side or on the credit side but since the accounts are inter-dependent therefore a system of recording increases and decreases on the two sides had to be fixed. Traditionally or conventionally increases in asset accounts are recorded on the debit side while increases in liabilities and capital are recorded on the credit side. The above rule ensures that when account balances are totaled will confirm to the accounting equation discussed above. It gives rise to the following rules: . 1. Increases in asset accounts are debits, decreases are credits. 2. Increases in liability accounts are credits, decreases are debits. 3. Increases in Owner's equity accounts are credits, decreases are debits. Total classes of accounts maintained by any business will include the accounts relating to expenses, losses, revenues and profits in addition to assets, liabilities and proprietor's funds. Rules of debit and credit regarding assets, liabilities and capital have been stated above and the rules for expenses / losses and revenues/ profits can be derived from the same. 4. Increases in expenses/ losses accounts are debits. Since the expenses and losses when incurred and suffered lead to reduction in the capital and ecreases in owner's equity accounts are debits, therefore increases in expenses and losses accounts are Debits. 5. Increases in revenues/ profit accounts are credits. Since the revenues and profits when earned will lead to increase in the capital and increase in owner's equity accounts are credits, therefore increases in revenue and profits accounts are credits. The rules of debit and credit discussed above are based on accounting equation technique. Traditional rules of debit and credit are based on classification of accounts. These rules in practice give the same results and operate in the same manner. These merely stale the position in a different way