Published: November 2025 | Last updated: July 12, 2026
- Debit does not automatically mean increase, and credit does not automatically mean decrease.
- The effect depends on the account type.
- Assets and expenses normally carry debit balances.
- Liabilities, equity, and revenue normally carry credit balances.
- Total debits must equal total credits in every balanced journal entry.
What Are Debit and Credit in Accounting?
Debit and credit are the two sides used to record every transaction in a double-entry bookkeeping system.
A debit is recorded on the left side of a ledger account, and a credit is recorded on the right side. These terms do not mean good or bad, and they do not always mean increase or decrease.
The account type determines the effect. A debit increases an asset account, but a debit decreases a liability account. A credit increases revenue, but a credit decreases an expense account.
The IRS explains that under double-entry bookkeeping, every account has a debit side and a credit side, and total debits must equal total credits after journal entries are posted.
Source: IRS Publication 583
Debit and Credit Rules Chart
The easiest way to learn debit and credit is to identify the account type and then determine whether it is increasing or decreasing.
| Account Type | Debit Effect | Credit Effect | Normal Balance |
|---|---|---|---|
| Assets | Increase | Decrease | Debit |
| Liabilities | Decrease | Increase | Credit |
| Owner’s Equity | Decrease | Increase | Credit |
| Revenue | Decrease | Increase | Credit |
| Expenses | Increase | Decrease | Debit |
| Owner Withdrawals / Drawings | Increase | Decrease | Debit |
Why Debits Must Equal Credits
Every transaction affects at least two accounts, and the total debit amount must equal the total credit amount.
This requirement keeps the accounting equation balanced:
For example, when an owner invests $10,000 cash into a business, cash increases by $10,000 and owner’s capital increases by $10,000.
Credit Owner’s Capital $10,000
The debit increases the cash asset. The credit increases owner’s equity. Both sides equal $10,000, so the entry remains balanced.
The SEC describes the balance sheet relationship as assets equaling liabilities plus shareholders’ equity. The same basic equation applies when owner’s equity is used for a sole proprietorship.
Source: SEC Beginner’s Guide to Financial Statements
How Debits and Credits Affect Each Account
Assets
Assets include cash, accounts receivable, inventory, equipment, and prepaid expenses. A debit increases an asset, while a credit decreases it.
Liabilities
Liabilities include accounts payable, loans payable, wages payable, and taxes payable. A credit increases a liability, while a debit decreases it. Read more in our guide to liabilities in accounting.
Owner’s Equity
Owner’s equity represents the owner’s residual claim in the business. A credit generally increases owner’s capital, while a debit decreases equity. Owner withdrawals are recorded in a separate drawings account with a normal debit balance. See our complete guide to owner’s equity.
Revenue
Revenue accounts normally increase with credits. When a business earns service revenue or sales revenue, the revenue account is credited.
Expenses
Expense accounts normally increase with debits. Examples include rent expense, salary expense, utilities expense, and advertising expense.
Debit and Credit Journal Entry Examples
Journal entries become easier when you identify the accounts, classify each account, and determine whether each balance increases or decreases.
Example 1: Paying rent in cash
Credit Cash $1,500
Rent expense increases with a debit. Cash decreases with a credit.
Example 2: Buying equipment for cash
Credit Cash $6,000
Equipment increases with a debit, and cash decreases with a credit.
Example 3: Buying supplies on account
Credit Accounts Payable $2,000
Supplies increase as an asset, while accounts payable increases as a liability.
Example 4: Providing services for cash
Credit Service Revenue $4,000
Example 5: Providing services on account
Credit Service Revenue $3,000
Example 6: Collecting a customer balance
Credit Accounts Receivable $3,000
Example 7: Paying a supplier
Credit Cash $2,000
Purchases, Sales, and Inventory
The account used for purchases depends on whether the business uses a periodic or perpetual inventory system.
Periodic inventory system
Under a periodic inventory system, merchandise purchases are generally recorded in a Purchases account. The Purchases account normally carries a debit balance.
Credit Accounts Payable $5,000
Perpetual inventory system
Under a perpetual inventory system, merchandise purchases are recorded directly in the Inventory account.
Credit Accounts Payable $5,000
When merchandise is sold under the perpetual system, two entries are usually recorded: one for the sale and one for the cost of the inventory sold.
Credit Sales Revenue $2,000
Debit Cost of Goods Sold $1,200
Credit Inventory $1,200
Learn more about periodic and perpetual systems in our inventory count guide.
Debtor vs Creditor
A debtor owes money, while a creditor has the right to receive money.
| Term | Meaning | Business Example |
|---|---|---|
| Debtor | A person or entity that owes money | A customer who bought goods on credit |
| Creditor | A person or entity entitled to receive money | A supplier the business has not yet paid |
In accounting records, an unpaid customer balance is generally reported as accounts receivable, an asset. An unpaid supplier balance is generally reported as accounts payable, a liability.
Debit Balance vs Credit Balance
An account has a debit balance when total debits exceed total credits, and a credit balance when total credits exceed total debits.
A normal balance is the side on which an account usually increases. Cash normally has a debit balance, accounts payable normally has a credit balance, and sales revenue normally has a credit balance.
An account can temporarily show an unusual balance. For example, a bank account may show a credit balance in the company’s books if an overdraft creates an amount owed to the bank. The presentation can depend on the circumstances and applicable reporting requirements.
Common Debit and Credit Mistakes
Mistake 1: Assuming debit always means increase
A debit increases assets and expenses, but it decreases liabilities, equity, and revenue.
Mistake 2: Assuming credit always means decrease
A credit increases liabilities, equity, and revenue, but it decreases assets and expenses.
Mistake 3: Treating owner’s capital as a liability
Owner’s capital is an equity account, not a business liability. It normally increases with a credit.
Mistake 4: Recording an expense as a liability
An expense records the cost consumed during the period. A liability records an obligation. Paying rent in cash debits rent expense and credits cash; it does not automatically create a liability.
Mistake 5: Saying the Purchases account is always used
The Purchases account is generally used under the periodic inventory system. Under the perpetual system, purchases of merchandise are recorded directly in Inventory.
Mistake 6: Recording only one side of a transaction
Every complete double-entry journal entry requires equal total debits and credits.
Frequently Asked Questions
What is debit and credit in simple terms?
A debit is an entry on the left side of an account, and a credit is an entry on the right side. Their effect depends on the account type.
Which accounts increase with a debit?
Assets, expenses, and owner withdrawals normally increase with debits.
Which accounts increase with a credit?
Liabilities, owner’s equity, and revenue normally increase with credits.
Is cash a debit or credit account?
Cash is an asset with a normal debit balance. Cash is debited when it increases and credited when it decreases.
Is revenue debit or credit?
Revenue normally has a credit balance. Revenue increases with a credit and decreases with a debit.
Are expenses debit or credit?
Expenses normally have debit balances. An expense increases with a debit and decreases with a credit.
Is accounts payable debit or credit?
Accounts payable is a liability with a normal credit balance. It increases with a credit and decreases with a debit.
Is accounts receivable debit or credit?
Accounts receivable is an asset with a normal debit balance. It increases with a debit and decreases with a credit.
Why must debits equal credits?
Equal debits and credits keep the accounting equation balanced and provide a built-in check within double-entry bookkeeping.
Is a customer a debtor or creditor?
A customer is a debtor when the customer owes the business money. A customer may become a creditor when the business owes the customer a refund or has received an advance payment.
Bottom Line
Debit and credit are accounting directions, not simple labels for money coming in or going out.
Debits appear on the left and credits appear on the right. Assets, expenses, and drawings normally increase with debits. Liabilities, equity, and revenue normally increase with credits.
The most reliable method is to identify the accounts affected, classify each account, decide whether it increased or decreased, and confirm that total debits equal total credits.
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