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by jessaustin
1409 days ago
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Your link shows that AR is a subaccount of Assets and AP is a subaccount of Liabilities, so credits to each have the opposite effect with respect to a balance sheet. GP has a different understanding of the "polarity" of debits and credits, but if anything this seems to support rather than undermine proposition "A" above? |
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I think what you mean here is that a debit balance in an asset account is presented as a positive amount, whereas a debit balance in a liability account would show as a negative amount.
This is true, but that doesn't mean a credit has the opposite effect depending on whether it's applied to an asset or liability account. Consider that you have two different accounts with your bank:
- a current account (usually the bank owes you money, i.e. usually a credit balance from the bank's POV)
- a loan account (you bought a car on credit, and owe the bank money, i.e. a debit balance from bank's POV)
For the bank, the current account is a liability ($1,000) and the loan account is an asset ($25,000).
When you deliver a bag containing $5,000 to the bank, the bank will credit one of these two accounts. They'll either increase the current account to $6,000, or decrease the loan account to $19,000.
In either case, the credit has the same effect: your net debt to the bank is decreased by $5k.