In: Accounting
Debits and Credits are the foundation for recording transactions in an accounting system. Do debits represent positive numbers, and credits negative? Why?If we record each transaction that occurs in the journal, why do we need to post each of them to the ledger? What is the significance of the ledger?
Debits in accounting is generally used to represent assets, expenses and losses. So any increase in such type of accounts lead to increase in their debit balance and any decrease leads to credit of such accounts. Thus for assets, expenses and losses, debits represent positive numbers and credit represent negative numbers.
Credits in accounting is generally used to represent liabilities and income. So any increase in such type of accounts lead to increase in their credit balance and any decrease leads to debit of such accounts. Thus for liabilities and income, credits represent positive numbers and debits represent negative numbers.
We need to post each journal to its respective ledger in order to find out the adjusted or closing balance of that particular ledger. Since posting of journal to ledger helps to find out its closing balance, this helps in the preparation of adjusted trail balance, post closing trail balance and balance sheet as all these statement needs the adjusted and closing balance of the ledger accounts.