Debits and Credits
Learn the rules of debits and credits, how T-accounts work, and why every entry has to balance.
TL;DR
- Put every entry's
debitson the left andcreditson the right. - Debits raise
assetsand expenses; credits raiseliabilities, equity, and revenue. - Make total
debitsequal total credits in every transaction.
What They Mean
DebitAn entry on the left side of an account.
Debit = leftCreditAn entry on the right side of an account.
Credit = rightNot Good or BadEach just moves an account up or down.
Direction depends on accountForget the BankThe bank's meaning is the opposite of yours.
Ignore the debit-card ideaThe Rules
AssetsGo up with a debit, down with a credit.
Debit to increaseExpensesAlso rise with a debit.
Debit to increaseLiabilities and EquityRise with a credit, fall with a debit.
Credit to increaseRevenueRises with a credit as the business earns.
Credit to increaseT-Accounts
The ShapeDraw a T, name on top, two columns below.
Name over left | rightLeft Is DebitDebit amounts go in the left column.
Debits on the leftRight Is CreditCredit amounts go in the right column.
Credits on the rightFind the BalanceThe bigger side minus the smaller is the balance.
Net the two columnsKeep It Balanced
Equal Every TimeTotal debits must equal total credits.
Debits = creditsDEALERDebits: Expenses, Assets, Draws. Credits: the rest.
D-E-A-L-E-ROne Up, One DownMost entries raise one account and lower another.
Two accounts, one amountCheck Before PostingNever enter an out-of-balance transaction.
Off by a cent? Fix it firstTips
- Forget the bank's meaning of the words; in accounting a
debitis simply the left side and acreditis the right, nothing more. - Use the
DEALERmemory aid: Debits grow Expenses, Assets, and draws; Credits grow Liabilities, Equity, and Revenue.
Warnings
- A
debitis not good and acreditis not bad; each just increases some accounts and decreases others. - If total debits do not equal total
credits, the entry is wrong, so never post an entry that does not balance.
In Practice
See how one purchase becomes equal debits and credits across two accounts.
Your business buys a $2,000 laptop and pays cash on the spot.
- Equipment is an asset going up, so debit Equipment $2,000.
- Cash is an asset going down, so credit Cash $2,000.
- Total debits $2,000 equal total credits $2,000.
- One asset rose and another fell, so the equation still balances.
Debit Equipment $2,000, credit Cash $2,000: a balanced entry.
Every transaction is equal debits and credits, no exceptions.
FAQ
In accounting they simply mean left and right. A debit is an entry on the left side of an account; a credit is an entry on the right. They are not good or bad, and they do not mean the same thing as on a bank statement. Whether a debit raises or lowers an account depends on the account type.
Assets and expenses increase with a debit and decrease with a credit. Liabilities, equity, and revenue increase with a credit and decrease with a debit. A common memory aid is DEALER: Debits raise Expenses, Assets, and owner Draws; Credits raise Liabilities, Equity, and Revenue.
Because the accounting equation must stay balanced, every transaction records equal amounts on both sides. If you debit one account $500, you must credit another account, or accounts, a total of $500. When the two sums match, your books stay in balance and the totals can be trusted.
A T-account is a simple way to picture one account, drawn as a large letter T. The account name sits on top, debits go on the left of the stem, and credits go on the right. It is the classic tool for seeing how a single transaction affects an account before it is entered into the books.