- Now, I want to remind you once again
that this is hard stuff.
Most people pull back at about this point in time,
right on the edge of the big breakthrough
and they just don't see it through.
Well, that's not going to be you.
In the very near future, the dots are going to connect,
and you will soon know what many individuals
just don't have the discipline to learn.
Debits and credits are a new language,
and learning a new language requires patience and effort.
Hang in there.
Your effort now will be so worth it later.
Now some words of caution.
First, be careful not to let the general non-accounting
meaning of the words credit and debit confuse you.
In general conversation, credit has an association
with plus and debit with minus.
But on the asset side of the accounting equation,
where debit means increase and credit means decrease,
this association can lead you astray.
In accounting, debit simply means left.
And credit simply means right.
Second, individuals who have trouble grasping debits
and credits usually get hung up on the revenue
and expense accounts.
Remember that revenues and expenses are sub-categories
of retained earnings.
When you credit a revenue account,
you're essentially increasing retained earnings.
When you debit an expense account,
you are increasing the amount of the expense,
which in turn reduces retained earnings.
Finally, we stated previously that owner's equity accounts
will have credit balances, however, expense as a component
of retained earnings will almost always
have a debit balance.
Since revenues will usually exceed expenses,
the net effect on retained earnings will result
in a credit balance, phew.
Now that we understand that the accounting equation
must always balance, and that debits
must always equal credits, we're now ready to try our hand
at actually recording transactions like real accountants do.