- March 18, 2016 at 2:36 am #306866dylanMember
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Someone asked me to understand the concept and logic of debit credit.
Let take one example:
If we buy a car, meaning we spend the money and we get the car. So the double entry would be : DR car(asset) CR cash(asset).the money become less . Is it means that Debit is for increase and Credit means decrease? For P&L revenue is credit. revenue is income, money that we will gain. if we use the concept debit is increase credit is decrease so can’t say revenue is decrease right?March 18, 2016 at 5:09 am #306868mrjonbainModerator
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I think it basically relates to the accounting equation.This is owners equity=assets-liabilities.The reason revenue is a credit can be more easily understood if you consider that expenses are debits.Expenses are debits because an expense will either result in the creation of a liability or a decrease in asset such as cash.In other words something which will reduce owners equity.Revenue on the other hand must result in either increase of asset such as cash or receivable or more rarely a decrease in liability (for example if customer being supplied a service agrees in exchange for service to forgive a previous debt owed to them).In this way revenue results in increase in owners equity.
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