How Accounts, Debits, and Credits are Used to Record Business Transactions

Abstract

To keep a company's financial data organized, accountant developed a system that sorts transactions into records called account. An account is an individual record of increase and decrease in a specific asset, liability, or owner’s equity/stockholders’ equity item. In its simplest form, an account consists of three parts (a) the title of the account, (b) a left side or debiting, and (c) a right side or crediting. The combine of those parts become a form that we called a T-account. T-account need two element that consist of debit and credit that used by accountants when recording transactions in business company. Some transactions are a mixture of increase/decrease effect. The types of accounts that increased with a debit like dividends, expenses, assets, and losses. Then for increased with a credit like gains, income, revenues, liabilities, and stockholders (owner’s) equity. So  an asset account is increased with a debit and therefore it is decreased with a credit. The other one is the debit/credit system has internal consistency that attempts to describe the effects of a transaction in debit/credit for and it will be something wrong when debits do not equal credits. For now, financial report was computerized systems that challenge any attempt to unbalanced transaction that does not satisfy the condition of debits = credits. The debit/credit rules are built with logical structure.