- Assets in the Balance Sheet are the debit balances in the bookkeeping system.
- Liabilities in the Balance Sheet are credit balances in the bookkeeping system.
Credit and Debit Balances in the Profit Statement
- In the Profit Statement, sales and income are the credit balances.
- In the Profit Statement, costs are the debit balances.
- The net total of all the balances is the profit or loss.
- This one figure (profit or loss) goes into the Balance Sheet as a single item.
- A profit is a credit which is listed with the liabilities.
Explanation on why profit (a credit balance in the Profit Statement) is listed with liabilities in the Balance Sheet
- The explanation is that the profit belongs to someone outside the business.
- If the Balance Sheet is for a company, the profit belongs to the shareholders.
- It may one day be paid to them in the form of a dividend or by return of capital on the winding up of the company.