Debits & Credits (3)

We also need to review how debits and credits affect the Fund Balance components. Remember that:

Ending Fund Balance = Beginning Fund Balance + Revenues + Fund Additions - Expenses - Fund Deductions.

Below is a chart indicating the normal balance or how each component of fund balance is increased:

	Fund Balance
Normal Balance Increased by	(Subsidiary Ledger)	(General Ledger)
Debits (DR)	Expenses	Fund Deductions
Credits (CR)	Revenues	Beginning Fund Balance Fund Additions

Notice that the normal balance for Revenue and Fund Additions which increase Fund Balance is credit and Expenses and Fund Deductions which decrease Fund Balance is debit. Why is this significant?

Because, Fund Balance is increased with credits and decreased with debits.

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Debits & Credits (2)

The following chart indicates the normal balance or how each part of the equation is increased.

Normal Balance Increased by			Accounting Equation (General Ledger)
Debits (DR)			Assets
Credits (CR)			Liabilities Fund Balance

Now that we know what the normal balances are, let's take another look at the accounting equation.

Assets - Liabilities = Fund Balance

restated, placing debits on side and credits on the other :

Assets (DR) = Liabilities (CR) + Fund Balance (CR)

NOTE: Debits (DR) = Credits (CR)

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