Debit and Credit principle

Debit and Credit principle

Each transaction consists of debits and credits, and for every transaction they must be equal.

For Every Transaction: The Value of Debits = The Value of Credits

The extended accounting equation must also balance: 'A + E = L + OE + R'

(where A = Assets, E = Expenses, L = Liabilities, OE = Owner's Equity and R = Revenues)

So 'Debit Accounts (A + E) = Credit Accounts (L + R + OE)'

Debits are on the left and increase a debit account and reduce a credit account.

Credits are on the right and increase a credit account and decrease a debit account.