Debit vs. Credit on a Balance Sheet

អានជាភាសាខ្មែរនៅក្នុងឆានែលតេលេក្រាម / Read the Khmer version in our Telegram channel.

Debit and credit are accounting terms that indicate how a transaction affects different accounts on a balance sheet. A balance sheet shows the assets, liabilities and equity of a company at a given point in time.

Assets are the valuable resources controlled by a company, such as cash, inventory, equipment, etc. Liabilities are the obligations of a company, such as loans, accounts payable, taxes, etc. Equity is the difference between assets and liabilities, which represents the owners’ claim on the company’s assets. The accounting equation states that assets equal liabilities plus equity.

Assets = Liabilities + Equity

A debit increases an asset account or decreases a liability or equity account, while a credit does the opposite. For example, if a business buys a computer for $1000 with cash, it debits equipment (increase) and credits cash (decrease). The balance sheet shows that the total assets remain unchanged at $1000, but the composition of assets changes from cash to equipment. The liabilities and equity do not change because this transaction does not involve borrowing money or issuing shares.

Balance Sheet: