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Why are the rules of debit and credit the same for liability accounts and stockholders' equity accounts?
Given: debit for decreases (-) / credit for increases (+)

2007-12-01 10:36:48 · 4 answers · asked by Serious Sal 1 in Business & Finance Credit

4 answers

On your balance sheet what are the categories into which an account must fall? What accounts are listed on the left? What do they total to ? What accounts are listed on the right?If the total on the left is reduced by the liabilities on the right what is left to equal the total on the left? Would that be shareholder equity? Assets = liabilities + shareholder equity? This is in the first chapter of the primer for Basic Accounting.

2007-12-01 10:51:02 · answer #1 · answered by googie 7 · 0 1

When you decrease an equity account, you must either decrease an asset (ex: cash paid) or create (increase) some type of liability.

For example, if you book a legal expense, you decrease equity by booking a debit for to Legal Fees. The other side of the entry must either decrease an asset account, or increase a liability account. If you are accruing the expense (cash to be paid at a later date) you would cr. Accrued Legal Fees.

If the dr (-) and cr (+) were not the same for equities and liabilities, double entry accounting would not work. If that was the case, from the example, you would've had to book either both credits or both debits, which would not work in double entry accounting.

2007-12-01 11:01:52 · answer #2 · answered by Anonymous · 0 0

Debit Liability Account

2016-12-11 13:45:25 · answer #3 · answered by ? 4 · 0 0

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2016-04-07 02:24:12 · answer #4 · answered by Anonymous · 0 0

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