If you recall, revenues increase equity and expenses decrease equity

A debit increases expenses, which in turn decreases equity

A credit increases revenue, which in turn increases equity

QS:As a reminder, what does equity represent?

Answer: The excess of all revenues over all expenses. It is what is left over for the owners of the company.

Equity:

  -An increase in equity is a credit

  -A decrease in equity is a debit

Equity can further be broken down into expenses and revenues

Expenses

   -An increase in an expense is a debit (decrease in equity)

   -A decrease in a expense is a credit (increase in equity)

Revenues

  -An increase in a revenue is a credit (increase in equity)

  -A decrease in a revenue is a debit (decrease in equity)

This may all sound confusing now, but I promise it will get easier!

For now, please reference the handout that illustrates how debits and credits impact each financial statement element

By the end of our training, we guarantee that you will no longer need it!