![]() We get cash from borrowing or increasing liabilities, so a CREDIT INCREASES LIABILITIES (credit = source of cash). ![]() Increasing assets uses cash, and so a DEBIT INCREASES ASSETS (debit = use of cash) because we use cash to ‘buy’ the asset. If you have trouble remembering which goes on the left and which on the right, one trick you can do is to think of the letter r for r ight. ![]() A credit is always entered on the right side of a. Debits are on the left side of the ‘T’ ledger. Rephrasing the original statement, in double entry accounting, the balance sheet is always kept in balance by making the uses of cash equal the sources of cash. Credits: A credit is an accounting transaction that increases a liability account such as loans payable, or an equity account such as capital. But debits and credits do not seem to be intuitive concepts for many analysts, so let us think of them in the context of something everyone understands: cash. “In double-entry accounting, the balance sheet is always kept in balance by making debits equal credits. For those of you that recoil at the site of my hand writing: Unfortunately, most people find reading to be enough work already. I have read that working with text that is difficult to read improves comprehension (because you have to work harder to read the text). The second item was a definition of debits and credits that I found in a book titled Accounting for M&A, Equity and Credit Analysts: However simple it may be, I found that referencing it frequently helped cement the concept of debits and credits. This sheet was tacked to my cublicle wall immediately to the right of my computer screens. The first was a single sheet of paper with a hand-drawn version of the accounting equation. But two items really helped as references. I had taken several courses in college, but that was the extent of my education prior to taking an analyst role. On account of my limited exposure, debits and credits did not come naturally to me at first. I did not have a formal accounting background when I started working in investment banking.
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