Debits & Credits Simplified
This post will cover debits and credits, which make up double-entry accounting.
Common Misconceptions
Debits and credits are neither good nor bad. Debits and credits are not the same as adding or subtracting. Debits and credits are words used to reflect the double-sided nature of financial transactions. Accountants acknowledge that every transaction involves a flow of economic benefit from a source to a destination.
Debit & Credit Accounts
Credits, the source contains the owner's equity, liabilities, and revenue. Debits, the destination includes assets, expenses, and dividends. An equation to sum this up: dividends + expenses + assets = liabilities + owner's equity + revenue. The debits on the left side of the equation increase when debited and decrease when credited. The credits on the right side of the equation increase when credited and decrease when debited. An easy way to remember which side of the accounting equation these terms fall under is DEALER.
TL;DR
Debits & Credits depict the double-sided nature of financial transactions
Debits represent the flow of economic benefit to a destination
Credits represent the flow of economic benefit from a source
Debits are dividends, expenses, and assets
Credits are liabilities, owner's equity, and revenue
In the accounting equation this can be rearrange to dividends + expenses + assets = liabilities + owner's equity + revenue
An easy way to remember this is DEALER
I like the brevity of these posts, helps comprehension a lot. What is a source and what is a destination in from an accountant's perspective? (metaphors would be appreciated) :)