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Double-Entry Accounting: Debits and Credits

The double-entry system of accounting is a concept underlying modern accounting processes. It implies that each financial transaction that is being carried out has an equal but opposite impact on at least two different accounts. The double-entry system is used for satisfying the Assets = Liabilities + Equity equation. Therefore, in such a scenario, credits are being balanced by debits in the general ledger or T-accounts. Double-entry accounting is essential because it helps standardize the processes and improve the accuracy of the financial statements being prepared while also allowing for the improved identification and elimination of errors.

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Debits and credits are very important to the system of double-entry. For them to be in balance with one another, a transaction’s total debits and the total credits must be equal. However, debits are not always equal to increases, and credits do not equate to decreases in all cases (Hayes, 2020). A debit can lead to an increase in one account and decrease the other, which suggests that the statement of income, debits point to the rise in the balances in the accounts reflecting expenses and losses while credits decrease them. Conversely, debits “decrease revenue and gains account balances while credits increase them” (Hayes, 2020, para. 3).

Therefore, one is right to suggest that debits should equal credits within the double-entry system. If they are not equal, it means that there has been an error made in the entries that needs to be identified and corrected. In case when debits do not equal credits, the books are out of balance, and any financial report to be generated from such a set of books is considered erroneous and meaningless. However, it is possible that debits and credits coincide, and there is a mistake somewhere else in the books.

References

Hayes, A. (2020). Double-entry definition.

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StudyCorgi. "Double-Entry Accounting: Debits and Credits." March 29, 2022. https://studycorgi.com/double-entry-accounting-debits-and-credits/.

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StudyCorgi. 2022. "Double-Entry Accounting: Debits and Credits." March 29, 2022. https://studycorgi.com/double-entry-accounting-debits-and-credits/.

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StudyCorgi. (2022) 'Double-Entry Accounting: Debits and Credits'. 29 March.

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