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I learned from my accounting 101 professor, "debits on the left, credits on the right." Then later after learning about natural account balances, it all made s
by jlj 6y ago
I learned from my accounting 101 professor, "debits on the left, credits on the right."
Then later after learning about natural account balances, it all made sense. If an account has a debit balance, a debit increases the balance and a credit decreases it. An asset or expense account has a debit balance.
Credit balance is just the opposite. Liabilities, revenue, accounts. Credit is an increase, debit decrease. (I think equity too but I always have to look it up. Rarely work with equity accounts in my day to day)
- juped 6y agoEquity accounts are confusing.
- jkulubya 6y agoI wish I could tell you how to remember it from first principles, but I can’t do what I did was burn the A = L + (OE/Equity) accounting equation into my head. Then I remember that the when my bank balance goes up, the bank speaks of a credit in their accounts which is a debit to assets in my account. Then L + OE must be credit accounts. Why are OE and L on the same side? Well to finance an asset, say a new car for your business, the company would either take on some debt (L) or you’d put in some of your own money (OE) in exchange for more ownership. I don’t know if that’s more confusing or less
- juped 6y agoI mean, it's not hard to remember. They're liability-like. It's just their uses in practice that're confusing. BTW, nonprofits have Net Assets accounts instead of Equity accounts.