Debit means left and credit means right. Not good and bad, not plus and minus. Stop translating them into signs and everything else gets easier.
Here is the whole definition, and it disappoints everyone: debit means the left column. credit means the right column. That is it. They are not positive and negative, they are not increase and decrease, and they are certainly not good and bad. Your bank telling you it has "credited your account" is describing its books, where your money is a liability it owes you.
Debit = left. Credit = right. What that does to an account depends entirely on what kind of account it is.
The reason accountants keep two columns instead of one signed number is proof. With two columns, the sum of every left-hand entry must equal the sum of every right-hand entry — across one entry, across a day, across the whole ledger. A signed column that sums to zero proves the same thing, but it hides each side's own total, which is what you foot against a bank statement or a subledger, and it makes every reader work out the sign before they can read the number.
Wrong
amount: -1240.56
Right
debit: 0 credit: 124056
Draw a T. Write the account name on top, debits down the left, credits down the right. That is a T-account — a classroom sketch of the two-sided ledger page merchants have kept for centuries, still the fastest way to think about an entry, and the thing every ledger screen in every accounting system is a dressed-up version of.
1000Cash — operating
| Debit | Credit |
|---|---|
| JE-160,000.00 | JE-224,000.00 |
| JE-59,500.00 | JE-37,200.00 |
| JE-1014,000.00 | JE-912,000.00 |
| JE-123,000.00 | JE-118,400.00 |
| JE-132,000.00 | |
| Total86,500.00 | Total53,600.00 |
Balance 32,900.00 on the debit side — the difference between the two columns.
Notice what the two columns give you that a running total does not: $86,500 came in and $53,600 went out. A single balance of $32,900 hides both of those, and "how much cash moved through this account" is a question with a fraud-detection use.
An accountant reads an entry as debit this, credit that, debits first, always with the amounts. Getting used to the phrasing is most of the battle: debit inventory 18,000, credit accounts payable 18,000 is one fact about the world — goods arrived and are not paid for — said in the only language the ledger accepts.
$18,000 of stock arrives from a supplier, on 30-day terms.
| Account | Debit | Credit |
|---|---|---|
| 1300Inventory | 18,000.00 | |
| 2000Accounts payable | 18,000.00 | |
| Balanced | 18,000.00 | 18,000.00 |
No cash moved at all, and the entry still has to be made: Northwind now owns goods and owes money for them. This is the entry cash-basis bookkeeping cannot make.
One entry, both sides, with the reasoning that produced it.
Your turn
Northwind receives $18,000 of stock from a supplier on 30-day terms. The debit is written. Write the credit — and note that no cash account appears anywhere in this entry.
| Row | AAccount | BName | CDebit | DCredit |
|---|---|---|---|---|
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 |
One line is not an entry. Every entry has at least two.
Check yourself
Northwind collects $14,000 from a customer who was invoiced in September. What is the entry?
Requirements, conventions and mechanics are three different things. These are the sources behind the requirements — and the ones marked as conventions are ours, not the standard-setters'.
The full map is in US GAAP, and where these rules come from.
Each links to its definition in the glossary, where it also states the authority behind it and the components that render it.
The ideas in this lesson, explained for the founder who runs the company. Each has its own entry in the founder glossary.