Hello
If you make a credit transaction, it will increase your creditors (Cr.) and also increase your purchases/expenses (Dr.). Some of these items will appear on the P&L account (such as purchases and overheads) which is part of the double entry system and other items will appear on the Balance Sheet which is not part of the double entry system. You will see the creditors as a Cr. balance on the balance sheet whereas the reversing entry will be incorporated within the P&L value which will reduce/increase the capital. As an example:
You pay for a months rent on credit. You now have:
Rent £300 Dr. (P&L)
Creditors £300 Cr. (BS)
The balance of the P&L incorporating all income and expenditure will be presented on the Balance Sheet and appear as Retained Earnings (or to make it simpler it will increase or decrease the Capital held). In the example above, presume no other transactions hit the P&L account, this would create a £300 loss. So in effect your balance sheet would increase £300 Cr. for Creditors and decrease £300 Cr. for Capital. They would in effect balance each other out within Cr. side of the Balance Sheet. I hope this makes sense...Dean
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