Why Profit Appears as a Credit on a Company's Balance Sheet
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Liabilities
Amounts owed by the company
Accounting Equation
Assets = Liabilities + Owner's Equity
Owner's Equity
Owner's investment in the company
Profit
Owners' investments + earned profits - distributed amounts
Credit Balance
Positive balance in owner's equity section of balance sheet
Debit
Recording an increase in asset or decrease in liability
Double Entry System
Recording transactions with debits and credits
Drawing Account
Temporary account decreasing owner's equity
Sole Proprietor's Drawing Account
Temporary account for owner's personal cash withdrawals
Revenue Account
Temporary account increasing owner's equity
Asset Accounts
Accounts with debit balances
Balance Sheet
Financial statement showing assets, liabilities, and equity