Why Profit Appears as a Credit on a Company's Balance Sheet

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