As we have already discussed the Accounting Equation in the earlier chapter, we all know that every transaction involves assets, capital and liabilities either individually or collectively by different investors.These values get changed because of different business financial transactions.
The term ‘Debit and Credit’ are used in financial transactions to show the change in the value of assets, capital and liabilities.You should know that every financial transaction shows a debit and a credit value. In areal sense, ‘Debit and Credit’ are used to show the profitability and the financial status of any business.As we know that assets are always equal to capital and liabilities, the total of all debits and all credits is always equal to the same.
Now, we know that every accounting transaction has a debit and credit. These two terms are important to show any financial transactions of the company whether to present a report or check the details of any particular project. In this context, these two terms are used in journal entries and trial balance, ledger accounts,trading account, profit and loss account.
It is an age-old tradition to write all the financial transactions as‘Debit and Credit.’It has been seen that these two are the only media to show different financial transactions of any type of business whether it is the small scale industry or big scale industry.
In this context, these both are simply known by keeping the Debit at left-hand side and the Credit at right-hand side. Although it does not mean to define the meaning, it is just the way to represent them.
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