Dual Entry Accounting
- Every voucher has to be balanced
- For each credit entry there must be an appropriate debit entry
Income Statement & Balance Sheet Link
The difference of revenue and expenses in the income statement generate a net profit.
This net profit is used to get Retained Earnings. These retained earnings are plotted in the equity section of the balance sheet. This balances out the balance sheet in terms of sales and expenses.
Assets
Increase = Debited Decrease = Credited
Liabilities
Increase = Credited Decrease = Debited
Equity
Increase = Credited Decrease = Debited
Sales / Revenue
Increase = Credited Decrease = Debited
Expenses
Increase = Debited Decrease = Credited (includes Cost of goods sold)
Development POV
In-order to get retained earnings in balance sheet, one can get all the revenue up till now and subtract all the expenses up till now, getting the total net profit. This can further be subtracted from any Dividends if applicable (maybe it is expense?)