What Credit (CR) and Debit (DR) Mean on a Balance Sheet (2024)

There are a few theories on the origin of the abbreviations used for debit (DR) and credit (CR) in accounting. To explain these theories, here is a brief introduction to the use of debits and credits, and how the technique of double-entry accounting came to be.

Key Takeaways:

  • The terms debit (DR) and credit (CR) have Latin roots: debit comes from the word debitum, meaning "what is due," and credit comes from creditum, meaning "something entrusted to another or a loan."
  • An increase in liabilities or shareholders' equity is a credit to the account, notated as "CR."
  • A decrease in liabilities is a debit, notated as "DR."
  • Using the double-entry method, bookkeepers enter each debit and credit in two places on a company's balance sheet.

Understanding Debit (DR) and Credit (CR)

A Franciscan monk by the name of Luca Pacioli developed the technique of double-entry accounting. Pacioli is now known as the "Father of Accounting" because the approach he devised became the basis for modern-day accounting. Pacioli warned that you should not end a workday until your debits equal your credits. (This reduces the possibility of errors of principle.)

Let's review the basics of Pacioli's method of bookkeeping or double-entry accounting. On a balance sheet or in a ledger, assets equal liabilities plus shareholders' equity. An increase in the value of assets is a debit to the account, and a decrease is a credit. On the flip side, an increase in liabilities or shareholders' equity is a credit to the account, notated as "CR," and a decrease is a debit, notated as "DR." Using the double-entry method, bookkeepers enter each debit and credit in two places on a company's balance sheet.

Debit (DR) vs. Credit (CR)

Both of the terms debit and credit have Latin roots. The term debit comes from the word debitum, meaning "what is due," and credit comes from creditum, defined as "something entrusted to another or a loan."

When you increase assets, the change in the account is a debit, because something must be due for that increase (the price of the asset). Conversely, an increase in liabilities is a credit because it signifies an amount that someone else has loaned to you and which you used to purchase something (the cause of the corresponding debit in the assets account).

The terms debit and credit signify actual accounting functions, both of which cause increases and decreases in accounts, depending on the type of account. That's why simply using "increase" and "decrease" to signify changes to accounts wouldn't work.

When it comes to the DR and CR abbreviations for debit and credit, a few theories exist. One theory asserts that the DR and CR come from the Latin present active infinitives of debitum and creditum, which are debere and credere, respectively. Another theory is that DR stands for "debit record" and CR stands for "credit record." Finally, some believe the DR notation is short for "debtor" and CR is short for "creditor."

Account Types

A company's chart of accounts contains different types of accounts. These include:

  • Assets: The asset account contains a company's resources, such as cash, accounts receivable, and inventory.
  • Expenses: The expense account shows the company's cost of doing business, such as expenses for materials, labor, and advertising.
  • Liabilities: The liability account reflects what the company owes, such as accounts payable and wages.
  • Equity: Equity refers to company ownership, such as in the form of stock and investment.
  • Revenue: A revenue account contains the income generated by the business.

How Debits and Credits Affect Account Types

Every transaction that occurs in a business can be recorded as a credit in one account and debit in another. Whether a debit reflects an increase or a decrease, and whether a credit reflects a decrease or an increase, depends on the type of account.

Account DebitCredit
AssetIncreaseDecrease
ExpensesIncreaseDecrease
LiabilitiesDecreaseIncrease
EquityDecreaseIncrease
RevenueDecreaseIncrease

Examples of Debits and Credits

For example, say Company XYZ issues an invoice to Client A. The company's accountant records the invoice amount—$1,000—as a debit, or DR, in the accounts receivables section of the balance sheet, because that is an asset account. The company records that same amount again as a credit, or CR, in the revenue section.

When Client A pays the invoice to Company XYZ, the accountant records the amount as a credit (CR) in the accounts receivables section, showing a decrease, and a debit (DR) in the cash section, showing an increase.

Why Is Debit a Positive?

A debit reflects money coming into a business's account, which is why it is a positive.

Is Accounts Payable a Credit or a Debit?

Accounts payable is a type of liability account, showing money which has not yet been paid to creditors. An invoice which has not been paid will increase accounts payable as a debit. When a company pays a creditor from accounts payable, it is a credit.

Does Debit Go on the Left or the Right?

In traditional double-entry accounting, debit, or DR, is entered on the left. Credit, or CR, is entered on the right.

The Bottom Line

In double-entry accounting, CR is a notation for "credit" and DR is a notation for debit. Credit is a term used to mean "what is owed," and debit is "what is due." Understanding how to use CR and DR will help you make sense of a company's balance sheet and gain useful insight into the increases and decreases of key accounts.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.

  1. Baladouni, Vahe. "Etymological Observations on Some Accounting Terms." Accounting Historians Journal. vol. 11, no. 2, Fall 1984, pp. 108-109.

  2. Merriam-Webster. "Credit."

  3. Ovunda, Adum Smith. "Luca Pacioli's Double-Entry System of Accounting: A Critique." Research Journal of Finance and Accounting, vol. 6, no. 18, 2015, pp. 132-139.

  4. Sherman, W. Richard. "Where's the R in Debit?" Accounting Historians Journal.vol. 13, no. 2, Fall 1986, pp. 4.

What Credit (CR) and Debit (DR) Mean on a Balance Sheet (2024)

FAQs

What Credit (CR) and Debit (DR) Mean on a Balance Sheet? ›

An increase in liabilities or shareholders' equity is a credit to the account. It's notated as "CR." A decrease in liabilities is a debit that's notated as "DR." Bookkeepers enter each debit and credit in two places on a company's balance sheet using the double-entry method.

What does Dr and Cr mean on a balance sheet? ›

The Finance System is a double-entry accounting system. This means that entries of equal and opposite amounts are made to the Finance System for each transaction. As a matter of accounting convention, these equal and opposite entries are referred to as a debit (Dr) entry and a credit (Cr) entry.

What is a debit and credit on a balance sheet? ›

Debits increase the value of asset, expense and loss accounts. Credits increase the value of liability, equity, revenue and gain accounts. Debit and credit balances are used to prepare a company's income statement, balance sheet and other financial documents.

Does CR mean I owe money? ›

CR stands for credit, so when you see this on a bill or bank statement it means you are in credit – in other words, you have surplus money in your account. In contrast, DR stands for debit which is the amount you owe on a bill, such as a credit card bill. Or the amount you are overdrawn on a bank statement.

Why is debit DR and credit CR? ›

Professor Richard Sherman believes that he has found the answer to the "r" in "debit" riddle and supports it with some vagarious and robust research: Now the mystery is solved — “Dr” is an abbreviation for “debtor”; “Cr” is short for “creditor.”

Does Dr. mean I owe money? ›

CR is a notation for "credit" and DR is a notation for debit in double-entry accounting. Credit is a term that's used to mean "what is owed" and debit means "what is due."

Does CR balance mean profit or loss? ›

When the credit side is more than the debit side it denotes profit. Hence, Credit balance of Profit and loss account is profit.

Is credit positive or negative? ›

On a balance sheet, positive values for assets and expenses are debited, and negative balances are credited. Financial Industry Regulatory Authority. “Margin Regulation."

What does the rules of debit and credit for a balance sheet say? ›

Difference between Debit and Credit:

Credit is passed when there is a decrease in assets or an increase in liabilities and owner's equity. Debit is passed when an increase in asset or decrease in liabilities and owner's equity occurs.

What is an example of a debit and credit in financial accounting? ›

Debit refers to the left-hand side of an account, while credit refers to the right-hand side. In double-entry accounting, each transaction must have an equal debit and credit amount. For example, if a business purchases inventory with cash, the inventory account will be debited, and the cash account will be credited.

Does credit balance mean I owe money? ›

A negative credit card balance, also known as a credit balance, means that your card issuer owes you money. A negative balance is created when you pay more toward the account than you owe. Here are some scenarios that could result in a credit balance: You overpaid your bill.

Is CR a credit or debit? ›

To keep your business's financial records in order, you need to track the money coming in and going out — also known as balancing your books. 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.

What is CR and DR? ›

What is the difference between CR and DR?
Credit (CR)Debit (DR)
Denotes money added to the accountDenotes money deducted from the account
Increases the account balanceDecreases the account balance
Printed as "+CR" or "CR" next to the amountPrinted as "+DR" or "DR" next to the amount
Mar 31, 2022

What is the difference between DR balance and CR balance? ›

Key Differences Between Debit and Credit

These entries create financial statements such as the balance sheet and income statement. Dr. entries are used to create the left-hand side of the balance sheet, while cr. entries are used to create the right-hand side of the balance sheet.

What is the DR and CR side of the balance sheet? ›

A debit records financial information on the left side of each account. A credit records financial information on the right side of an account. One side of each account will increase and the other side will decrease.

What does CR and DR mean on a statement? ›

CR denotes that money has been credited or deposited in your account ,and DR means money has been debited or withdrawn from your account.

What is the easiest way to remember Dr and Cr? ›

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.

What is Dr and Cr for dummies? ›

  • It means Debit, Cr means Credit.
  • Debit and Credit simply mean 'left' and 'right' .
  • A Debit increases an Asset Account, and an Expense account and Decreases a Liability Account.
  • A Credit decreases an Asset Account, Increases a Liability Account and increases a Revenue account.

What does Dr mean on a balance statement? ›

There are two important acronyms on a bank statement. One is DR and the other is CR. DR means debit entry which means the amount is drawn from the balance. CR means that an amount is added to the balance.

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