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A decrease to the bank's liability account is a debit. From the bank's point of view, when a credit card is used to pay a merchant, the payment causes an increase in the amount of money the bank is owed by the cardholder. From the bank's point of view, your credit card account is the bank's asset. An increase to the bank's asset account is a debit.
Buying assets by borrowing money (taking a loan from a bank or simply buying on credit) 3 − 900 − 900 Selling assets for cash to pay off liabilities: both assets and liabilities are reduced 4 + 1,000 + 400 + 600 Buying assets by paying cash by shareholder's money (600) and by borrowing money (400) 5 + 700 + 700 Earning revenues 6 − 200 ...
Whether one uses a debit or credit to increase or decrease an account depends on the normal balance of the account. Assets, Expenses, and Drawings accounts (on the left side of the equation) have a normal balance of debit. Liability, Revenue, and Capital accounts (on the right side of the equation) have a normal balance of credit.
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Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit. In most business entities, accounts receivable is typically executed by generating an invoice and either mailing or electronically delivering it to the customer, who, in turn, must pay it within an established timeframe, called credit terms [citation needed] or payment terms.
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The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. [4] Another way to look at the balance sheet equation is that total assets equals liabilities plus owner's equity.
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