What it means
Double-entry bookkeeping records every transaction from two sides. Money always comes from somewhere and goes somewhere, so each transaction touches at least two accounts. One side of the record is called a debit and the other a credit.
Debit and credit are just names for the left and right columns of a ledger. Neither means good or bad. Picture a two-pan scale: whatever weight goes on one side, the same weight goes on the other, and the books stay level.
Each account has a normal side. Assets, like cash and receivables, grow with a debit, and so do expenses. Liabilities, equity and revenue grow with a credit. Recording on the opposite side shrinks the account.
Because every entry puts equal amounts on both sides, total debits across the whole ledger always equal total credits. That's the built-in check. If the totals differ, an entry is missing a line or has a typo, and you find out before the numbers reach anyone else.
On March 1, Acme pays $4,500 of rent for March. Rent expense goes up, so it's debited $4,500. Cash goes down, and since cash is an asset, a decrease is a credit of $4,500. Both sides equal $4,500: the P&L shows the rent and the balance sheet shows less cash.
Each balanced pair of lines is a journal entry. List every account's balance on one date and you have a trial balance, which is what the statements are built from.
Why it matters. It's what makes books checkable. If debits don't equal credits, something is wrong, and you know it before anyone else does.
The entry, worked
Acme pays $4,500 for March office rent from its operating account on March 1.
| Account | Debit | Credit |
|---|---|---|
| Rent expense | $4,500.00 | |
| Cash | $4,500.00 | |
| Total | $4,500.00 | $4,500.00 |
Expenses go up with a debit and cash goes down with a credit, so the entry balances at $4,500 on each side.
Common questions
Why does a debit increase cash but decrease a liability?
Assets and expenses have normal debit balances; liabilities, equity and revenue have normal credit balances. A debit increases the first group and decreases the second.
Does my accounting software handle debits and credits for me?
Yes, for bank feeds, invoices and bills. You still meet them in manual journal entries at month end, and in every report your CPA sends back.
What's the accounting equation?
Assets equal liabilities plus equity. Every balanced entry keeps it true: paying $4,500 of rent lowers cash, an asset, and lowers equity through the expense by the same amount.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- Double-entryRecording every transaction as equal debits and credits, so the ledger proves itselfGlossary
- Balance sheet explained for startupsAssets equal liabilities plus equity. What each startup line means, from deferred revenue to the SAFE and the accumulated deficit, and why it must balance.Guide · 7 min
- General ledger and double-entry bookkeeping, explainedHow double entry works: journal entries, debits and credits, normal balances, running balances, the trial balance, and why posted entries are reversed.Guide · 6 min
- Debits and creditsDebit means left and credit means right. Not good and bad, not plus and minus. Stop translating them into signs and everything else gets easier.Lesson 4
- Why the books existBookkeeping is not record-keeping for its own sake. It is a system built so that an error announces itself and every figure traces back to an event.Lesson 1
- The trial balanceEvery account, netted onto one side, with both columns summed. It proves the arithmetic, and you need to know exactly how much it does not prove.Lesson 7
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.