Debits and credits

Debits and credits are the backbone of double-entry accounting system. In double-entry accounting, a company’s assets are equal to its liabilities plus owner’s equity. This is known as the accounting equation (Assets = Liabilities + Equity). Each transaction has to be recorded in at least two accounts and the sum of all debits must equal…

Accounting equation with examples

In a double-entry system, for every debit entry there must be a credit entry and vice versa. This leads us to the basic accounting equation: Assets = Liabilities + Owners’ Equity The above equation shows how assets are financed: either by borrowing money from someone (liabilities) or by paying your own money (owner’s equity).