Debits and Credits

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Debits and Credits Credit and debit are the two fundamental aspects of every financial transaction in the double-entry bookkeeping system. SmartNotes 1. fig. 1 In a non-accounting sense, "credit" is money that a creditor makes available to a client to borrow. However, "credit" in this sense is not an accounting term, although this word comes up regularly in business and, therefore, accounting. In the academic field of accounting (bookkeeping), such dictionary definitions are misleading, and the words "debit" and "credit" as used in accounting have little connection with the nonprofessional's understanding of "debit" and "credit." In accounting, credit and debit are the two fundamental aspects of every financial transaction in the double-entry bookkeeping system for which every debit transaction must have a corresponding credit transaction(s), and vice versa. Debits and credits are systems of notation used in bookkeeping to determine how to record any financial transaction. In financial accounting or bookkeeping, "Dr" (Debit) indicates the left side of a ledger account and "Cr" (Credit) indicates the right. Debits and credits serve as the two balancing aspects of every financial transaction in double-entry bookkeeping. Debits are entered on the left side of a ledger, and credits are entered on the right side of a ledger. Whether a debit increases or decreases an account depends on what kind of account it is. In the accounting equation, Assets = Liabilities + Equity (A = L + E), if an asset account increases (by a debit), then one must also either decrease (credit) another asset account, or increase (credit) a liability or equity account. Each transaction (say, of value £100) is recorded by a debit entry of £100 in one account and a credit entry of £100 in another account. When people say, "debits must equal credits" they do not mean that the two columns of

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