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Understanding debits and credits is fundamental to accounting because they form the basis for every transaction. In double-entry bookkeeping, every financial transaction affects at least two accounts.
The key is that each entry has one debit and one credit, keeping the books balanced.

• **Debits (Dr)**: These increase asset or expense accounts and decrease liability, revenue, or equity accounts.
• **Credits (Cr)**: They increase liability, revenue, or equity accounts and decrease asset or expense accounts.

Each type of account has a normal balance side, which is where increases to the account are recorded. For example, assets typically have a debit normal balance, whereas liabilities usually have a credit normal balance.
Learning to apply these rules helps ensure that accounts in a book always reflect true and accurate balances.

Balance sheet accounts provide a snapshot of a company’s financial position at a given moment in time. They are split into two main categories: assets and liabilities, and owner's equity.
**Assets** include all the things a company owns that bring value, such as cash, inventory, and equipment. Assets typically increase through debits and have a normal debit balance.
**Liabilities** reflect what the company owes to others. This could be in the form of loans, accounts payable, or any other financial obligations. Liabilities increase through credits and have a credit normal balance.
Understanding how these accounts interact helps business owners, accountants, and stakeholders assess the organization's stability and financial health. Knowing which items to debit or credit provides a seamless way to maintain a balance sheet's accuracy.

Owner's equity represents the owner’s stake in the business. It is formed from investments, the retained earnings, and sometimes paid-in capital. Understanding how owner’s equity works can help clarify how much value the company truly holds for its owners.
Common owner's equity components include:

• **Capital Account**: Indicates the amount the owner has invested in the business. It normally increases with credits and decreases with debits.
• **Drawing Account**: Tracks withdrawals the owner makes for personal use. It increases with debits and has a normal debit balance.

When transactions take place, understanding their impact on these equity accounts can illustrate shifts in ownership value and offer transparency into the company’s financial dealings.

Income statement accounts are necessary for measuring a business’s performance over a period. These accounts record the revenue and expenses incurred by a company.
**Revenues**: Revenue accounts accumulate income from sales of goods or services. They increase with credits and their normal balance is on the credit side.
**Expenses**: Expense accounts record costs incurred in earning revenue. They increase with debits and have a normal debit balance. By accurately managing these accounts, a business can determine its profitability. The difference between revenues and expenses during a period results in the business's net income or loss. Maintaining accuracy in these accounts is key to determining proper financial performance reporting. Analyzing these statements gives insights into operational efficiency and potential financial improvements.