Debit & Credit
Debits and credits describe transactions. For every transaction, there is an equal and opposite Debit/Credit entry. It is important to remember that debits or credits are neither positive nor negative values. The entry under an account is a debit or a credit, not a positive or a negative value.
Asset and expense accounts increase in value when debited and decrease when credited. Liability, equity, and revenue accounts decrease in value when debited and increase when credited.
How do we know when to use credit or debit? We use the following table as a guideline:
Increase Decrease
Assets Debit Credit
Liabilities Credit Debit
Income Credit Debit
Expenses Debit Credit Hence, with reference to the above table, when there is an increase in an asset item, we record that as a debit entry (value is placed under the debit column). Vice versa, a decrease in an asset item would be recorded under the credit column.
An example of recording the transaction of paying a bill is shown as follows:
Paying the Utilities Bill for the Month of March
Account Debit Credit
Utility Bill for the Month of March $200
Cash $200
Here is another example involving receiving payment for selling a product:
Sales Revenue from Services Provided for the Month of March
Account Debit Credit
Product Stockpile $1000
Cash $1000
And a final example on purchasing some new machinery:
Purchase of Some New Machinery
Account Debit Credit
Office Machinery $800
Cash $800
Once you understand these basic concepts, you will then be ready to learn more advanced accounting principles.
Asset and expense accounts increase in value when debited and decrease when credited. Liability, equity, and revenue accounts decrease in value when debited and increase when credited.
How do we know when to use credit or debit? We use the following table as a guideline:
Increase Decrease
Assets Debit Credit
Liabilities Credit Debit
Income Credit Debit
Expenses Debit Credit Hence, with reference to the above table, when there is an increase in an asset item, we record that as a debit entry (value is placed under the debit column). Vice versa, a decrease in an asset item would be recorded under the credit column.
An example of recording the transaction of paying a bill is shown as follows:
Paying the Utilities Bill for the Month of March
Account Debit Credit
Utility Bill for the Month of March $200
Cash $200
Here is another example involving receiving payment for selling a product:
Sales Revenue from Services Provided for the Month of March
Account Debit Credit
Product Stockpile $1000
Cash $1000
And a final example on purchasing some new machinery:
Purchase of Some New Machinery
Account Debit Credit
Office Machinery $800
Cash $800
Once you understand these basic concepts, you will then be ready to learn more advanced accounting principles.