The notion of debits and credits can be related to the fundamental accounting equation.  Consider both of the following observations:

 

Assets = Liabilities + Owners’ Equity

and

Debits = Credits

 

These concepts can be merged to note:

 

Assets (Debits) = Liabilities (Credits) + Owners’ Equity (Credits)

 

For example, consider the impact of an owner investment on the fundamental accounting equation:

 

Assets (+ or debited) = Liabilities + Owners’ Equity (+ or credited)

 

As you will soon learn, it is customary for accountants to record this transaction as follows:

 

Debits and Credits Explanation

 

It is a standing convention that debits are recorded to the left (in a sense, this corresponds to the idea that assets are usually on the left-hand side of a balance sheet).  Conversely, credits are indented to the right.