Self-Balancing System of Accounts
To comply with basic accounting principles, the accounting profession developed a system of account classification and defined debits and credits for each account class. The result is a system of accounts that automatically balances itself when both sides of a transaction are recorded correctly.
If the accounts do not balance, the transaction is not recorded correctly (this does not always mean that when the accounts do balance, the transaction is recorded correctly).
Account Classification | Debit | Credit |
|---|
Asset | Increase | Decrease |
Liability | Decrease | Increase |
Equity | Decrease | Increase |
Revenue | Decrease | Increase |
Expense | Increase | Decrease |
Notice that for debits to equal credits, an increase in an asset account must be accompanied by one of the following credits:
• A decrease in an asset account
• An increase in a liability or revenue account
Published date: 10/23/2019