Why do expenses increase

One of the first steps in analyzing a business transaction is deciding if the accounts involved increase or decrease. However, we do not use the concept of increase or decrease in accounting. The meaning of debit and credit will change depending on the account type. Debit simply means left side; credit means right side. Remember the accounting equation?

In each business transaction we record, the total dollar amount of debits must equal the total dollar amount of credits. The accounting requirement that each transaction be recorded by an entry that has equal debits and credits is called double-entry procedure , or duality. Watch this video to help you remember this concept:.

Review this quick guide to recording debits and credits. It will be necessary for you to commit the rules for debits and credits to memory before you move forward in this course. Note: This are general guidelines and we will have exceptions to these rules. Going further, each of these types of accounts falls into two primary types of accounting entries:. Debits: money taken from your account to cover expenses. Liability, expense. Credits: money coming into your account. Asset accounts, equity, revenue.

These two entries must balance each other out. This system of having a balance is called double-entry accounting and has been around since when Franciscan friar Luca Pacioli the Father of Accounting first published a book using this system. In Latin, debere means to owe and credere means to entrust. Makes sense, right? Debits and credits come into play on several important financial statements that you need to be familiar with.

This is a snapshot of the profitability of your business. At the top are listed all your revenues. Below are all expenses or losses, including accounts payable accounts. If you ever apply for a small business loan or line of credit, you may be asked to provide your income statement.

The focus of this report is on assets and liabilities. Investors care about your balance sheet because they can see whether there is enough cash for them to take a dividend. Cash flow is hugely important for any business. All content. Course content. About this free course 8 hours study. Level 1: Introductory.

Course rewards. Free statement of participation on completion of these courses. Create your free OpenLearn profile. Course content Course content. Introduction to bookkeeping and accounting Start this free course now. Free course Introduction to bookkeeping and accounting. Answer Each form of the equation is correct as both sides of the equal sign in each case would have the same figure.

Figure What do you notice about your answers to 3 and 4? Answer Figure Information point Closing stock is not included in the trial balance as it does not reflect a transaction that has a dual aspect — it is merely the purchases that have not been sold in the year.

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