Debit and Credit

You have probably seen the words debit and credit in connection with accounting. At first, these words may seem mysterious, but they actually provide a convenient way of applying the double entry principle.

Each of the items shown on the balance sheet is an account. In the accounting system, there is an account for every item that you want to keep track of.

Increases and Decreases: In the first examples given earlier, you started the Cash account by entering the amount of €10,000. In other words, you increased the amount in the account from zero to €10,000. Thereafter, you changed the amount in an account in one of two ways - you increased it or you decreased it. This is true for every account; you start the account by entering an amount which increases it from zero, and thereafter you change the amount either by increasing it or decreasing it. Increases are additions and decreases are subtractions. The only arithmetic operations in accounting are addition and subtraction.