Debit vs credit
Each, defined
Debit
Debit — The left column. It increases assets and expenses, and decreases liabilities, equity and revenue.
Credit
Credit — The right column. It increases liabilities, equity and revenue, and decreases assets and expenses.
Side by side
| Debit | Credit | |
|---|---|---|
| Side of the account | Left | Right |
| Increases | Assets, expenses | Liabilities, equity, revenue |
| Decreases | Liabilities, equity, revenue | Assets, expenses |
| Typical example | Cash received, a cost incurred | Revenue earned, a bill owed |
What a debit and a credit do, by account type
Every account type has a normal side: the side that increases it. The table is read off the same mapping the trial balance checker uses, so it cannot disagree with it.
| Account type | Normal balance | A debit | A credit |
|---|---|---|---|
| Asset | Debit | Increases it | Decreases it |
| Expense | Debit | Increases it | Decreases it |
| Liability | Credit | Decreases it | Increases it |
| Equity | Credit | Decreases it | Increases it |
| Revenue | Credit | Decreases it | Increases it |
How they relate
Double-entry needs two sides so every transaction can be recorded twice and the two records can be checked against each other. Debit and credit are the names of the sides, nothing more; the meaning comes from the account.
That is why the two must stay two columns. A single signed number cannot say which side a line was posted to, and an entry that balances by cancelling two errors becomes invisible.
Questions
- Why does my bank call a deposit a credit?
- Your bank statement is written from the bank's side. Your deposit is the bank's liability to you, so the bank credits your account when money comes in. In your own books the same cash is an asset, and an increase is a debit.
- Do debits always equal credits?
- Yes, always. Every entry's debits equal its credits, so the whole ledger's debits equal its credits — which is what a trial balance proves.
See it computed
Worked through: the calculators, the journal entries and the tools that use these terms.
- Journal entry for prepaid insuranceWhen the premium is paid, debit Prepaid insurance and credit Cash. At each month-end, debit Insurance expense and credit Prepaid insurance for the month's share of the policy, until the prepaid balance reaches zero.Entry
- Journal entry for a sale on accountFor a sale on credit, debit Accounts receivable and credit Revenue for the price; under a perpetual inventory system also debit Cost of goods sold and credit Inventory for what the goods cost. When the customer pays, debit Cash and credit Accounts receivable.Entry
- Journal entry for accounts payableWhen an approved vendor bill is entered, debit the expense or asset it bought and credit Accounts payable. When it is paid, debit Accounts payable and credit Cash.Entry
- Journal entry balancerPaste an entry, see the out-of-balance, and copy an import-ready CSV.Tool
Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.