Debit what come in, Credit what goes out
Balance Sheet
The balance sheet summarizes accounts and financial activities in three broad categories: assets, which represent all the things that the company owns; liabilities, which show how much money the company owes to others; and capital/retained earnings, which show the total cash invested in the business by the owners or shareholders.
Income Statement
In addition, accounts are kept for all the revenues and expenses of the company. These accounts are summarized in an income statement, also called a profit and loss statement, which represents the performance of a company over time.
Double-Entry Accounting
Double entry accounting requires that each transaction is properly recorded in two accounts. The sum of all credits must equal the sum of all debits. Each action on one type of account must have an equal effect in the opposite column. For example, paying the monthly mortgage payment decreases assets. The equal effect on the opposite side is that it reduces the amount owed to the lender, subsequently decreasing the company's liabilities. Both of these effects are recorded and help the credits and debits equal out.
