You might think that credits would always mean a decrease of balance, while the debits always increase the balance. ![]() Debits and Credits Explainedįor different accounts, it means different things. It’s important not just for your own clarity, but also because different account types behave differently when it comes to debits and credits. The job here is to understand what in it was an asset, a liability, or equity. There are three major types of accounts bookkeeper register while compiling financial statements:Įach transaction contains two accounts because something is always lost and something is always gained. ![]() That being said, if you want to not just read the statements but also understand what they mean, you need to spend some time learning about various types of financial accounts. The balance obviously changes, although because it always changes two ways, accountants can use a system of debits and credits.ĭebits and credits allow you to quickly scan through a financial statement and see how much value was lost or gained after the transaction. Each time you complete a financial transaction of any sort, you’ll need to make an account entry that describes what you lost and gained in the process.
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