Accounting: Making Sense of Debits and Credits!

debits and credits

All accounts, collectively, are said to comprise a firm’s general ledger. In a manual processing system, imagine the general ledger as nothing more than a notebook, with a separate page for every account. Thus, one could thumb through the notebook to see the “ins” and “outs” of every account, as well as existing balances.

debits and credits

When learning bookkeeping basics, it’s helpful to look through examples of debit and credit accounting for various transactions. In general, debit accounts include assets and cash, while credit accounts include equity, liabilities, and revenue. Implementing accounting software can help ensure that each journal entry you post keeps the formula and total debits and credits in balance. Can’t figure out whether to use a debit or credit for a particular account? The equation is comprised of assets (debits) which are offset by liabilities and equity (credits). You’ll know if you need to use a debit or credit because the equation must stay in balance.


According to Table 1, cash increases when the common stock of the business is purchased. Cash is an asset account, so an increase is a debit and an increase in the common stock account is a credit. Hopefully this will give you a deeper understanding of the terms debit and credit which are central to the 500-year-old, double-entry accounting and bookkeeping system. On the bank’s balance sheet, your business checking account isn’t an asset; it’s a liability because it’s money the bank is holding that belongs to someone else.

We love looking at A Deep Dive into Law Firm Bookkeeping from a math perspective because we can visually understand account types, debits, credits, and how they work together. Since subtracting is adding a negative number, a negative account balance will get bigger. A credit increases the account balance of Liabilities, Equity, and Income accounts. If we debit a positive account, the account balance always increases. Assets and Expenses are positive accounts (debit accounts) as they usually receive debits and maintain a positive balance. Equity, Income, and Liabilities are negative accounts (credit accounts) as they typically receive credits and maintain a negative balance.

What are debits and credits?

Assets and expenses are positive accounts, while Equity, Revenue, and Liabilities are negative accounts. The purpose of this tutorial is to explain in a new, unique way … For example, when paying rent for your firm’s office each month, you would enter a credit in your liability account. The credit entry typically goes on the right side of a journal.

debits and credits

The concept of debits and offsetting credits are the cornerstone of double-entry accounting. The rules governing the use of debits and credits are noted below. If you are really confused by these issues, then just remember that debits always go in the left column, and credits always go in the right column. When a company issues a credit to a client, it’s the company’s Cash account that is receiving the credit. When the customer purchased the product, the company’s Cash account received a debit.