This quick tutorial provides an overview of debit and credit accounting, a fundamental concept in finance and accounting. We’ll explain the basic principles and how they work in practice.

What are Debits and Credits?

Debits

Debits represent increases in assets or expenses. They can also represent decreases in liabilities, equity, and revenue. It’s a crucial aspect of double-entry bookkeeping, a fundamental accounting method businesses use to record and track financial transactions.

Credits

Credits represent increases in liabilities, equity, and revenue. They can also represent decreases in assets and expenses. The concept of credits and debits ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced.

The Rules of Debits and Credits

Assets

Debit to increase, credit to decrease.

Liabilities

Credit to increase, debit to decrease.

Equity

Credit to increase, debit to decrease.

Revenue

Credit to increase, debit to decrease.

Expenses

Debit to increase, credit to decrease.

How to Apply Debits and Credits

Cash Received

Increase in assets (Cash), so Debit.

Sales on Account

Increase in revenue, so Credit.

Paid Utilities

Decrease in assets (Cash), so Credit. Increase in Expenses, so Debit.

Loan Received

Increase in Liabilities, so Credit. Increase in Assets (Cash), so Debit.

Practice Examples

Basic Entry

Record a purchase of supplies for cash.

Sales Revenue

Record a sale of goods on credit.

Expenses

Record the payment of rent.

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