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Concept of debit and credit
When a transaction occurs in a business, it affects the three elements- assets, liabilities and owner’s equity. This results in changes of the financial values of the company. To define those financial changes, the terms debit and credit are used to show the profitability and the financial status of the business.
Classification of accounts:
They are classified into five groups which are:
1. Assets account.
2. Liabilities account.
3. Capital account.
4. Revenue and Profit account.
5. Expenses and Loses account.
Some important points to know:
1. Assets are always equal to liabilities and capitals.
2. Total of business credit and debits are always equal.
3. Every debt has a hand to hand credit.
4. Debit and Credit are the only media to report about a company’s loss and profit.
5. Debit is the left hand side and credit is the right hand side of equation.
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