For a self-test of accounting, a balance has long been invented. Balance is equilibrium, its meaning is that nothing goes anywhere in the enterprise, and assets are always equal to liabilities. The balance consists of the total debit and credit turnovers of the accounts for the reporting period.
What is credit and debit
Credit and debit (the emphasis is always on the first syllable) are concepts that are used in accounting to monitor the business processes of a company. There are a lot of accounting accounts, more than a hundred, they were created in order to reflect in more detail each operation of the firm. Each account has its own number and name.
Debit refers to all the assets of the enterprise, that is, what it has at the current date. This can be cash in bank accounts, cash on hand, the total cost of materials in warehouses, the amount of fixed assets, counterparties' debt. The higher the assets of the organization, the more successful and larger it is considered.
Liabilities or credit turnover are debts and sources of asset formation. Debts include: arrears in the payment of wages, arrears to counterparties, depreciation, arrears to the founders or owners of the company for the distribution of profits. The sources of assets formation are, for example, authorized or other capital.
What is the debit and credit turnover used for?
Each account is recorded separately. It looks like this: the debit in the context of the account is written on the left side, and the credit on the right. Each transaction is reflected in the transaction. An account can often be used during the reporting period. The amounts are recorded in the debit or credit columns, depending on the type of transaction. By their nature, account balances are divided into active, passive, active-passive.
An increase in the turnover of debit in active accounts or active-passive accounts means an increase in the property of the organization or the presence of rights of claim. An increase in loan turnover, on the contrary, shows their decrease.
In passive accounts, transactions are reversed. These accounts exist in order to show where and by what means the funds came to the organization.
At the end of the period, the debit and credit turnovers are summed up separately. It turns out the final balance is final. If the sums of turnovers on debit and on credit coincide, then the account is closed, since it is reset to zero. There are a number of accounts that necessarily have a zero balance at the end of the period, mainly these are accounts to which expenses are written off.
The double entry reflects the raison d'être of debit and credit. The bottom line is the name - double. That is, one operation should be recorded twice, using two accounts. On the first account, the amount of the transaction goes into debit, on the second - on credit, an equilibrium is obtained. Therefore, the balance must always converge. If the total turnover of the debit does not converge with the total turnover of the loan, then an accounting error has been made somewhere.
