The double entry accounting system, explained by our business accountant in Zetland
When conducting accounting transactions, it is important to remember the fundamental equation of accounting which is that assets equal the sum of a company’s liabilities and its owner’s equity. As our small business accountant in Sydney mentions below, every accounting transaction must affect at least two accounts, meaning that if an asset account increases, another asset account must decrease or increase.
In the dual entry nature of recording transactions, information is expressed as debits which are the uses of resources, and credits which are the sources of resources. Debits are placed on the left by our small business accountant in Zetland which either indicates an increase in an asset, a decrease in a liability or a decrease in a shareholder’s equity/retained earnings.
Credits are placed on the right and they indicate either a decrease in an asset, an increase in a liability or an increase in a shareholder’s equity/retained earnings. It is important to remember that asset accounts normally have debit balances, whereas liability and equity accounts normally have credit balances.
For more information regarding the double entry accounting system, please contact our business accountant in Zetland today.