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Debits and Credits

When we first started we asked the question, What is Accounting? and learnt that it is a system of recording information about a business.

Well, this system has a specific name. And that name is the
double entry system of accounting.

Balance the books! Double entry literally means two entries. And we literally make two entries. In the lessons in this section I will show you how we make these two entries, what a debit and a credit really are, and how these things all tie in with the basic accounting equation.

Before we head into the meat of this section, we're going to take a look at an alternative viewpoint of the basic accounting equation.

This short but powerful lesson will provide you with even greater certainty on the basic accounting equation, and connects this key equation with the concept of two entries in our double-entry system, as well as with the upcoming lesson on what debits and credits really mean (this second lesson shows that it's really much simpler than you think).

After we have a clear understanding of what these two overly complicated terms really mean, and how they relate to the basic equation, we're going to start applying debits and credits ... to the same transactions we went through before with George's Catering, namely:

The Owner Investing in a Business
Taking out a Loan
Purchasing Assets
Withdrawing Cash from the Business for Personal Use
An Income Example
Accrued Income (income that is owing to you)
Getting Paid by a Debtor (someone who owes you)
An Expenses Example
Accrued Expenses (expenses you owe to another)
Paying off Debts

The best way to make use of these lessons - just as before - is to simply go through them in order. You can, of course, skip to specific sections if you really want to. But the best way is to go through each lesson step-by-step and carry on through.

WARNING: If you're struggling with debits and credits and you've come straight to this page (without checking out some of the earlier sections), you may still run into some trouble... It's highly, highly recommended you backtrack a bit, otherwise this section won't make complete sense...

First start with the previous section on Basic Transactions. There you'll go through each type of transaction and gain a thorough understanding of how each transaction affects the basic accounting equation, which is one of the Basic Concepts, the first section of this site - and a section I recommend to everyone (not just beginners).

Use your judgement and choose carefully... and remember to always go back to an earlier section if you're getting confused!

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