Every financial transaction is recorded by creating a journal entry. For some who do have a little background in Accounting, you already have an idea of what a journal entry is or perhaps you have made a journal entry before. The recording process of Accounting is done by making a journal entry. Journal entry is created by debiting and crediting general ledger accounts.
Double entry accounting means that every debit to an account/s should have a corresponding credit to another account/s. Total debits should equal total credits.
But what do debits and credits mean?
It is increasing or decreasing the balance of an account.
Every general ledger account has a normal
balance of either a debit or a credit.
If the account’s normal balance is debit, you increase the balance by a
debit to this account and decrease it by a credit. Same goes for an account with a normal
balance of credit; you increase it by a credit and decrease it by a debit.
In the Accounting Equation
ASSETS = LIABILITIES +
EQUITY
Assets have the normal balance of debit, meaning when we debit an asset account like Cash, we are increasing the cash balance in the books of the company.
On the other hand, liabilities and equity have normal balance of credit.
