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Using Debit and Credit

  • Every transaction involves give and take aspect. In double entry accounting, every transaction effected is recorded in at least two accountsWhen recording each transaction, the total amount debited must be equal to the total amount credited.
  • In accountancy, the terms — debit and credit indicate if the transactions are to be recorded on the left hand side or right hand side of the account. In simple form, an account looks like the letter T. Because of its shape, this simple form called a T-account (refer figure 3.4). You can notice that the T format of accounts has a left side and a right side for recording increases and decreases in the accounts. This helps in ascertaining the ultimate position of each item at the end of an accounting period.
  • For example, in the books of a customer all goods sold shall appear on the left (debit) side of customer's account and all payments received on the right (credit) side. The difference between the totals of the two sides is called as balance It represents the amount due to the customer. In a T account, the left side is called debit (abbreviation - Dr.) and the right side is known as credit (abbreviation- Cr.).

Account title

(Left side)

(Right side)

Fig. 3.4: Showing T-account

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