What do debit and credit mean

To fully understand debits and credits, you first need to understand the concept of double-entry accounting. So every time you make money or spend money, just remember that at least one account will be debited and one will be credited.

And this happens for every single transaction which is part of why bookkeeping can be time-consuming. To recap: Debits generally happen when things are added to accounts. Credits happen when things are subtracted. Seems fairly simple right? The tricky part in understanding these two categorizations is that both debits and credits have different impacts across different types of accounts. For example, what happens if you debit an account that shows how much you owe to someone else?

Is it the same as debiting an account that shows how much you were just paid? The answer lies in what kind of balance the account in question normally holds. Does it hold a debit balance normally? Or does it hold a credit balance? Remember, any account can have both debits and credits. Here is another summary chart of each account type and the normal balances. Regardless of what elements are present in the business transaction, a journal entry will always have AT least one debit and one credit.

Privacy Policy. Skip to main content. Unit 3: The Accounting Cycle. Search for:. General Rules for Debits and Credits One of the first steps in analyzing a business transaction is deciding if the accounts involved increase or decrease.

Debits increase the balance of dividends, expenses, assets and losses. Record debits to the left on the main ledger column. Credits increase the balance of gains, income, revenues, liabilities, and shareholder equity. Credits are recorded to the right. When using debits and credits, think about what the transaction is really doing.

At initial glance, having a debit increase the balance of an asset and a credit decrease it seems counterintuitive. However, the way assets are calculated is by using the equation:. Therefore assets must be calculated using both liabilities and equity. Bench assumes no liability for actions taken in reliance upon the information contained herein. Sign up for a trial of Bench. No pressure, no credit card required. For Partners. By Nick Zarzycki on June 29, Contents What are debits and credits?

Debits and credits in action How debits and credits affect liability accounts How debits and credits affect equity accounts Debits and credits chart. Tired of doing your own books? Try Bench. Share this article.