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In the earlier chapter of Accounting Equation we have discussed that every accounting transaction involves assets, liabilities and capital individually or collectively. There is change in the value of assets, liabilities and capital as a result of business transactions of financial nature. We use the term Debit and Credit, in order to show the changes in the value of these basic accounting terms i.e., assets, liabilities and capital. In real sense these two terms are used to show the profitability and financial status of the business. As assets are always equal to liabilities and capital, the total of debits and credits of the business transactions is also always the same. It is an accepted universal accounting truth that, every debit has its corresponding credit.

Every accounting transaction has got two sides, ‘debit’ and ‘credit’. These are the two signs used in accounting to present and report the financial effect of every transaction. All the business transactions must have debit and its corresponding credit of the same amount. The term ‘debit’ and ‘credit’ is used in every walk of accounting. We use the term in our journal entries, ledger accounts, and trial balance, Trading and Protit and Loss Account. The debit and credit can be said to be the only media to report the financial position of the business. We have been using the term as a convention and age old tradition. We simply know that ‘left hand side is debit’ and the ‘right hand side is credit’. Keeping debit at the left hand side and credit at the right hand side may be a convention but not the meaning of the two words.