The increased side of the account refers to the side of a financial account that experiences an increase in value when recording transactions. In accounting, every transaction affects two or more accounts, with at least one account being debited and another being credited. The increased side is the one that receives the increase, resulting in a higher balance.
Explanation:
When using double-entry bookkeeping, which is the standard method in modern accounting, each transaction is recorded by debiting one account and crediting another. These entries are made in order to maintain the accounting equation: assets = liabilities + equity. The increased side of the account is the side that receives the value or asset and, consequently, experiences a higher balance.
Usage:
In practice, the increased side of the account varies depending on the type of account and the nature of the transaction. The common types of accounts are assets, liabilities, equity, revenues, and expenses. Understanding which side of the account increases will help in accurately recording financial transactions and maintaining the accuracy of financial statements.
Assets:
For asset accounts, which include cash, inventory, equipment, and property, the increased side is the left or debit side. When an asset account increases, it is debited, and the transaction is recorded on the debit side. This means that the asset account balance will increase. For example, when a company receives cash for a product sale, the cash account will be debited, increasing its balance.
Liabilities:
For liability accounts, such as accounts payable, loans payable, and accrued expenses, the increased side is the right or credit side. When a liability account increases, it is credited, and the transaction is recorded on the credit side. This results in an increase in the balance of the liability account. For instance, when a company incurs an expense on credit, the accounts payable account is credited, reflecting the increased liability.
Equity:
For equity accounts, including owner’s equity and retained earnings, the increased side is also the right or credit side. Any increase in equity is recorded by crediting the respective account, leading to an increase in the balance. When a company earns revenue, the revenue account is credited, contributing to the growth of the owner’s equity or retained earnings.
Revenues:
Revenue accounts represent income generated by a company through its primary operations. The increased side for revenue accounts is the right or credit side. When recording revenue, the revenue account is credited, increasing its balance and contributing to the overall increase in equity.
Expenses:
In contrast to revenue accounts, expense accounts represent the costs incurred by a company to generate revenue or maintain its operations. The increased side for expense accounts is the left or debit side. When recording an expense, the expense account is debited, reflecting an increase in its balance and a decrease in equity.
Conclusion:
Understanding the concept of the increased side of the account is crucial in accurate financial recordkeeping. It enables businesses and individuals to maintain a clear and comprehensive overview of their financial transactions, resulting in accurate financial statements. By correctly identifying which side of the account increases for each transaction, users of financial information can rely on the reliability and integrity of their accounting records.
