More Explanation On Debits And Credits

The notion of debits and credits can be related to the fundamental accounting equation.  Consider both of the following observations:


Assets = Liabilities + Owners’ Equity


Debits = Credits


These concepts can be merged to note:


Assets (Debits) = Liabilities (Credits) + Owners’ Equity (Credits)


For example, consider the impact of an owner investment on the fundamental accounting equation:


Assets (+ or debited) = Liabilities + Owners’ Equity (+ or credited)


As you will soon learn, it is customary for accountants to record this transaction as follows:


Debits and Credits Explanation


It is a standing convention that debits are recorded to the left (in a sense, this corresponds to the idea that assets are usually on the left-hand side of a balance sheet).  Conversely, credits are indented to the right.