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You could struggle as a business owner to know when to use a debit and when to utilize a debits and credits in accounting. Even so, you could be unsure of their relevance.
You can check that you're following the accounting equation by using debits and credits. The accounting equation is:
Assets = Liabilities + Equity
Any transaction that is recorded includes at least two accounts in double-entry accounting, with one account being debits and credits and the other being credited. To keep your accounts in balance, your debits and credits must always equal one another. Debits are always entered on the left side of the entry, while credits are always entered on the right.
Debits and credits are the foundation of precise accounting for a business, whether you're operating a sole proprietorship or a publicly traded enterprise. In contrast to credits, debits result in a gain in asset or expense accounts and a drop in liability accounts. Recording these transactions can get more difficult as your business expands, but it's important to get it right to keep your books balanced and monitor your organization's progress.
The double-entry accounting method is utilized by the majority of organizations, including small firms and sole proprietorships. This is because tracking debits and credits every business transaction in at least two accounts enables a more dynamic financial picture.
Learn more about debits and credits here
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