What are Debits and Credits?
Debits and credits are the two sides of every accounting entry under double-entry bookkeeping. Every transaction affects at least two accounts, and total debits must always equal total credits. Understanding the debit/credit rule for each account type lets you record any transaction correctly and keep the books in balance.
A debit (left side) increases assets, expenses, and dividends and decreases liabilities, equity, and revenue; a credit (right side) does the opposite. Total debits must always equal total credits.
- •Assets (Cash, Equipment)
- •Expenses (Rent, Salaries)
- •Dividends / Draws
- •Liabilities (Loans Payable)
- •Equity (Common Stock)
- •Revenue (Sales)
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Step-by-step worked examples
Cash starts the month at $5,000. During the month, $3,000 is debited and $1,000 is credited to Cash. What's the ending balance?
Cash is debit-normal -> Ending = Beginning + Debits − Credits Ending = 5,000 + 3,000 − 1,000 Ending = $7,000
A company pays $800 rent in cash. Journalize the entry.
Rent Expense increases -> debit Rent Expense $800 Cash decreases -> credit Cash $800 Debits ($800) = Credits ($800) — the entry balances
Accounts Payable begins at $2,000 (credit balance). The company is credited $1,500 more in purchases and debits (pays) $500. What's the ending balance?
Accounts Payable is credit-normal -> Ending = Beginning + Credits − Debits Ending = 2,000 + 1,500 − 500 Ending = $3,000
Flashcards
Quick quiz
Q1.Which side of a T-account is the debit side?
Q2.A $500 credit to Cash does what?
Q3.In double-entry bookkeeping, total debits must equal total…
Q4.A $1,000 debit to Salaries Expense and $1,000 credit to Cash records…
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Common mistakes
Debit means the account is going up and credit means it's going down. — Correct: Debit/credit just mean left/right — whether that increases or decreases depends on account type.
A journal entry can have unequal debits and credits if it's a small difference. — Correct: Debits must exactly equal credits on every entry, no exceptions.
Debits and credits only apply to cash accounts. — Correct: Every account — assets, liabilities, equity, revenue, expenses — uses debit/credit rules.
Crediting an expense account is unusual and always wrong. — Correct: Crediting an expense account is valid for reversing entries, refunds, or corrections.
FAQ
What are debits and credits in accounting?
They are the two sides of a journal entry: debit (left) and credit (right), used to record increases and decreases in accounts.
What is the formula connecting debits and credits?
Ending Balance = Beginning Balance + Debits − Credits for debit-normal accounts (reverse for credit-normal accounts).
What are examples of debit and credit entries?
Paying rent: debit Rent Expense, credit Cash. Receiving a bank loan: debit Cash, credit Loans Payable.
How do you calculate an account's balance from debits and credits?
Take the beginning balance, add amounts on the normal-balance side, and subtract amounts on the opposite side.