Every transaction involves give and take aspect. In double-entry accounting, every transaction affects and is recorded in at least two accounts. When recording each transaction, the total amount debited must equal to the total amount credited.
All accounts are divided into five categories for the purposes of recording the transactions: (a) Asset (b) Liability (c) Capital (d) Expenses/Losses, and (e) Revenues/Gains.
Two fundamental rules are followed to record the changes in these accounts:
(1) For recording changes in Assets/Expenses (Losses):
(i) “Increase in asset is debited, and the decrease in the asset is credited.”
(ii) “Increase in expenses/losses is debited, and decrease in expenses/losses is credited.”
(2) For recording changes in Liabilities and Capital/Revenues (Gains):
(i) “Increase in liabilities is credited and a decrease in liabilities is debited.”
(ii) “Increase in capital is credited and a decrease in capital is debited.”
(iii) “Increase in revenue/gain is credited and decrease in revenue/gain is debited.”
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