Debit and Credit Accounting Overview 

AgExpert Accounting uses what is known as a T Accounting model.  When we look at this model, there are three basic rules that must always be followed:

1) All accounts that normally contain a debit balance will increase in amount when a debit is added to them and reduced when a credit is added to them.  The types of accounts to which this rule applies are assets, expenses, and dividends.

2) All accounts that normally contain a credit balance will increase in amount when a credit is added to them and reduced when a debit is added to them.  The types of accounts to which this rule applies are liabilities, equity, and income.

3) The total amount of debits must equal the total amount of credits in a transaction.  Otherwise, an accounting transaction is said to be unbalanced and will not be accepted by AgExpert Accounting.

Whenever an accounting transaction is created, at least two accounts are always impacted, with a debit entry being recorded against one account and a credit entry being recorded against another account.  There is no limit to the number of accounts involved in a transaction, but the minimum is no less than two.  The totals of the debits and credits for any transaction must always equal each other, so that the accounting equation will always be in balance.

The entire structure of accounting transactions is based on the accounting equation, which is:

Assets = Liabilities + Equity + Income - Expenses 

This equation forms the explanation as to why debits and credits work the way they do.  We must always keep both sides of the equation the same.

The table below summarizes how different accounts are impacted by debits and credits:

Last updated on October 3, 2019 by FCC AgExpert