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Debits and credits form the foundation of the double-entry accounting system, a crucial concept in financial accounting. In this system, every financial transaction affects at least two accounts, maintaining the accounting equation: Assets = Liabilities + Equity. Debits increase asset or expense accounts and decrease liability, equity, or revenue accounts. Conversely, credits have opposite effects. Understanding this balance ensures accurate financial reporting, essential for analyzing a company’s financial health and making informed decisions.