Debits and Credits 101: Definitions & Example (2024)

In accounting, there’s one thing you can’t ignore: how debits and credits work. To keep accurate books, you need to learn and understand the difference between a credit vs. debit. Otherwise, your books will wind up unbalanced and sloppy (and no business owner wants that!). To get to know debits and credits in accounting like the back of your hand, keep reading.

What are debits and credits in accounting?

Part of your role as a business is recording transactions in your small business accounting books. And when you record said transactions, credits and debits come into play. So, what is the difference between debit and credit in accounting? Get the full scoop below.

Debit vs. credit

Debits and credits are equal but opposite entries in your books. If a debit increases an account, you must decrease the opposite account with a credit.


A debit (DR) is an entry made on the left side of an account. It either increases an asset or expense account or decreases equity, liability, or revenue accounts (you’ll learn more about these accounts later). For example, you debit the purchase of a new computer by entering it on the left side of your asset account.


On the other hand, a credit (CR) is an entry made on the right side of an account. It either increases equity, liability, or revenue accounts or decreases an asset or expense account (aka the opposite of a debit). Using the same example from above, record the corresponding credit for the purchase of a new computer by crediting your expense account.

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Debits and Credits 101: Definitions & Example (1)

Credit and debit accounts

Record accounting debits and credits for each business transaction. When you record debits and credits, make two or more entries for every transaction. This is considered double-entry bookkeeping.

When recording transactions in your books, you use different accounts depending on the type of transaction. The main accounts in accounting include:

  • Assets: Physical or non-physical types of property that add value to your business (e.g., land, equipment, and cash).
  • Expenses: Costs that occur during business operations (e.g., wages and supplies).
  • Liabilities: Amounts your business owes (e.g., accounts payable).
  • Equity: Your assets minus your liabilities.
  • Revenue/Income: Money your business earns.

Accounting credits and debits affect each account differently. Check out our chart below to see how each account is affected:

Debits and Credits 101: Definitions & Example (2)

Debit and credit journal entry

So, how does this whole “equal but opposite” transaction thing work with debits and credits? Here’s a basic example of how you would record debits and credits as a journal entry:

Opposite AccountX

Again, equal but opposite means if you increase one account, you need to decrease the other account and vice versa.

Examples of debits and credits

Now that you know about the difference between debit and credit and the types of accounts they can impact, let’s look at a few debit and credit examples.

Example 1

Let’s say you decide to purchase new equipment for your company for $15,000.

The equipment is an asset, so you must debit $15,000 to your Fixed Asset account to show an increase. Purchasing the equipment also means you increase your liabilities. To record the increase in your books, credit your Accounts Payable account $15,000.

Record the new equipment purchase of $15,000 in your accounts like this:

XX/XX/XXXXFixed AssetsPurchase of equipment15,000
Accounts Payable15,000

Example 2

Say you purchase $1,000 in inventory from a vendor with cash. To record the transaction, debit your Inventory account and credit your Cash account.

XX/XX/XXXXInventoryPurchase inventory1,000

Because they are both asset accounts, your Inventory account increases with the debit while your Cash account decreases with a credit.

Example 3

Onto our last of the debits and credits examples: Sales on credit. You make a $500 sale to a customer who pays with credit. Increase your Revenue account through a credit. And, increase your Accounts Receivable account with a debit.

XX/XX/XXXXAccounts ReceivableSale to customer on credit500

Credits vs. Debits: Quick recap

You must have a firm grasp of how debits and credits work to keep your books error-free. Accurate bookkeeping can give you a better understanding of your business’s financial health. Not to mention, you use debits and credits to prepare critical financial statements and other documents that you may need to share with your bank, accountant, the IRS, or an auditor.

Check out a quick recap of the key points regarding debits vs. credits in accounting.


  • Debits increase as credits decrease.
  • Record on the left side of an account.
  • Debits increase asset and expense accounts.
  • Debits decrease liability, equity, and revenue accounts.


  • Credits increase as debits decrease.
  • Record on the right side of an account.
  • Credits increase liability, equity, and revenue accounts.
  • Credits decrease asset and expense accounts.

This article was updated from its original publication date of December 3, 2015.

This is not intended as legal advice; for more information, please click here.

Debits and Credits 101: Definitions & Example (2024)


Debits and Credits 101: Definitions & Example? ›

The individual entries on a balance sheet are referred to as debits and credits. Debits (often represented as DR) record incoming money, while credits (CR) record outgoing money. How these show up on your balance sheet depends on the type of account they correspond to.

What is debit and credit with example? ›

For example, when two companies transact with one another say Company A buys something from Company B then Company A will record a decrease in cash (a Credit), and Company B will record an increase in cash (a Debit). The same transaction is recorded from two different perspectives.

What is the easiest way to understand debits and credits? ›

Debits are recorded on the left side of an accounting journal entry. A credit increases the balance of a liability, equity, gain or revenue account and decreases the balance of an asset, loss or expense account. Credits are recorded on the right side of a journal entry. Increase asset, expense and loss accounts.

What are debits and credits for dummies? ›

By long-standing convention, debits are shown on the left and credits on the right. An increase in a liability, owners' equity, revenue, and income account is recorded as a credit, so the increase side is on the right. The recording of all transactions follows these rules for debits and credits.

Is debit money in or out? ›

When your bank account is debited, money is taken out of the account. The opposite of a debit is a credit, in which case money is added to your account.

What is an example of a debit? ›

A debit (DR) is an entry made on the left side of an account. It either increases an asset or expense account or decreases equity, liability, or revenue accounts (you'll learn more about these accounts later). For example, you debit the purchase of a new computer by entering it on the left side of your asset account.

Is cash a debit or credit? ›

The cash account is debited because cash is deposited in the company's bank account. Cash is an asset account on the balance sheet.

How do I know if something is credit or debit? ›

In traditional double-entry accounting, debits are entered on the left, and credits are entered on the right, like so: Asset accounts Debit Increase, Credit Decrease. Expense accounts Debit Increase, Credit Decrease. Liability accounts Debit Decrease, Credit Increase.

Is a debit a gain or loss? ›

A debit is an accounting entry that creates a decrease in liabilities or an increase in assets. In double-entry bookkeeping, all debits are made on the left side of the ledger and must be offset with corresponding credits on the right side of the ledger.

How do you memorize debit and credit rules? ›

The easiest way to remember the meaning of debit and credit in accounting is as follows: – Assets increase on the debit side and decrease on the credit side. – Liabilities increase on the credit side and decrease on the debit side. – Equity increases on the credit side and decreases on the debit side.

Is an expense a debit or credit? ›

Is an Expense a Debit or a Credit, and Why Are People Often Confused By This? Again, because expenses cause stockholder equity to decrease, they are an accounting debit.

What is debit in simple words? ›

A debit is a record of the money taken from your bank account, for example when you write a cheque. The total of debits must balance the total of credits. Synonyms: payout, debt, payment, commitment More Synonyms of debit.

Does debit mean giving or taking? ›

(a record of) money taken out of a bank account: in debit UK The account was in debit at the end of the month (= more money had been spent than was in the account at that time). Debits are shown in the left-hand column.

What are the golden rules of accounting? ›

To achieve this, the entity must follow three Golden Rules of Accounting: Debit all expenses/Credit all income; Debit receiver/Credit giver; and Debit what comes in/Credit what goes out.

Is a deposit a debit or credit? ›

It follows the accounting principle; the deposit is a current liability that is debited and sales revenue credited. A customer deposit could also be the amount of money deposited in a bank. Since there are no cash earnings, the money is debit to the bank and credit to the customer's deposit account.

How do you know if its debit or credit? ›

Debits are always on the left side of the entry, while credits are always on the right side, and your debits and credits should always equal each other in order for your accounts to remain in balance. In this journal entry, cash is increased (debited) and accounts receivable credited (decreased).

Are debits good or bad? ›

There is no good or bad when it comes to debits and credits. I've seen people say “oh, debits are good because they increase the assets accounts” but if you do that, you're going to have a problem with expense accounts, which also have debit balances. Put very simply, debits (dr.)

What's the difference between credit and debit? ›

When you use a debit card, the funds for the amount of your purchase are taken from your checking account almost instantly. When you use a credit card, the amount will be charged to your line of credit, meaning you will pay the bill at a later date, which also gives you more time to pay.

What is an example of a credit? ›

Common examples include car loans, mortgages, personal loans, and lines of credit. Essentially, when the bank or other financial institution makes a loan, it "credits" money to the borrower, who must pay it back at a future date.


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