The difference between debit balance and credit balance lies in the accounts they are associated with and their impact on the financial records of a business.
- Debit Balance: A debit balance appears on an account that is an asset, expense, or loss. Debits increase the balance of an asset, expense, or loss account and decrease the balance of a liability, equity, revenue, or gain account. Debits are recorded on the left side of an accounting journal entry.
- Credit Balance: A credit balance appears on an account that is a liability, income, or capital. Credits increase the balance of a liability, equity, gain, or revenue account and decrease the balance of an asset, loss, or expense account. Credits are recorded on the right side of a journal entry.
In double-entry accounting, every transaction is recorded with a debit and credit in two or more accounts, which categorize different types of financial activities in a company's general ledger. For every debit in one account, another account must have a corresponding credit of equal value, ensuring that the books balance.
Comparative Table: Debit Balance vs Credit Balance
Here is a table illustrating the difference between debit balance and credit balance:
| Debit Balance | Credit Balance |
|---|---|
| Increases the balance of an asset, expense, or loss account. | Increases the balance of a liability, equity, revenue, or gain account. |
| Decreases the balance of a liability, equity, revenue, or gain account. | Decreases the balance of an asset, expense, or loss account. |
| Recorded on the left side of an accounting journal entry. | Recorded on the right side of a journal entry. |
In double-entry accounting, every transaction is recorded with a debit and credit in two or more accounts, which categorize different types of financial activities in a company's general ledger. Debits and credits are both opposite and equal, but they serve different purposes in the accounting process.
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