Double Entries, An Accounting Concept - Financial Accounting

 

> Every business transaction has a dual transaction
> Business transactions are analysed by examining

•  the dual effects of each business transaction (Debit and Credit)
  
• the impact on the accounting equation (Assets, Liabilities and Owner's Equity)
  

Example: A firm borrows cash to purchase a car

• Borrowing increases asset(cash) and also your liabilities (loan)
  
• Purchasing a car with cash increases your asset (Car) but also reduces your asset (Cash)
  

Recall the previous post on accounting equation?
A = L + OE

> Debit and credit are used to records entries such that the concept of duality can be fulfilled with minimal errors. 
> Asset has a nature of debit whereas liabilities and owner’s equity has a nature of credit.  

• This implies that when assets increase, you will debit that amount that correlates to that asset and when asset is being reduced, you will credit that amount that correlates to that asset. 
  
• The same goes for liabilities and owner’s equity. 
  

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