Question

American accountants have derived the rules of debit and credit through ________.

• A. Accounting equation
• B. Convention of conservation
• C. Accounting conventions
• D. Consistency

Answer 1

Answer: (A)

Accounting equation

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. Debit and credit are similar to accounting equation. Hence, american accountants have derived the rules of debit and credit through accounting equation.