Debits, Credits, and Double-Entry
🎯 Learning Objectives
- Understand that "debit" simply means LEFT and "credit" simply means RIGHT
- Apply the DEALER mnemonic to remember normal account balances
- Use the Golden Rule: Total Debits MUST equal Total Credits
- Determine which accounts are debited and credited in transactions
- Recognize normal balances for different account categories
📚 Background & Principles
Double-entry accounting is the foundation of modern financial record-keeping. It ensures that every transaction is recorded with at least two entries that balance each other.
This system originated in 15th-century Italy and revolutionized business record-keeping by ensuring mathematical accuracy and preventing errors.
🔑 Key Concepts
Simply means LEFT side of an account. NOT "good" or "bad"—just a position. Whether a debit is an increase or decrease depends on account type.
Simply means RIGHT side of an account. Like debit, it's just a position. The effect depends on whether account is an asset, liability, equity, revenue, or expense.
Every transaction affects at least two accounts, and total debits equal total credits. This ensures that accounting equation always balances.
The side that INCREASES an account. Assets and expenses have a debit normal balance. Liabilities, equity, and revenues have a credit normal balance.
🎨 Visual: The Accounting Equation with Debits & Credits
Click on each account type to see how debits and credits affect it:
Interactive Exercise: Determine Debit or Credit
For each transaction, select whether to debit or credit the specified account:
Transaction 1: Pay $1,000 cash to supplier (reduce cash)
Transaction 2: Record revenue earned of $5,000
Transaction 3: Purchase supplies on credit (increase accounts payable)
🔍 Deep Dive
Explore debits and credits at different levels of depth:
🟢 Foundational Level
Understanding the basic left-right concept of debits and credits.
Basic Concept: Left vs. Right
Remember: Forget what debit cards and credit cards mean in banking. In accounting:
Always the left side of a T-account
Always the right side of a T-account
🟡 Standard Level
The DEALER mnemonic for remembering normal balances.
The DEALER Rule
How to remember which side increases which account type:
Dividends, Expenses, Assets → Increase on DEBIT (left)
Liabilities, Equity, Revenue → Increase on CREDIT (right)
D-E-A (The Lefties)
Dividends | Expenses | Assets
To INCREASE these, you go LEFT (Debit).
Analogy: These are "Use" accounts. Using cash (Asset) or paying an Expense "uses" value.
L-E-R (The Righties)
Liabilities | Equity | Revenue
To INCREASE these, you go RIGHT (Credit).
Analogy: These are "Source" accounts. They provide value.
Summary Table: Normal Balances
The "Normal Balance" is the side that INCREASES the account.
| Account Category | To Increase (+) | To Decrease (-) |
|---|---|---|
| Assets (Cash, Land) | Debit (Left) | Credit (Right) |
| Liabilities (Debt) | Credit (Right) | Debit (Left) |
| Equity (Stock) | Credit (Right) | Debit (Left) |
| Dividends | Debit (Left) | Credit (Right) |
| Revenues | Credit (Right) | Debit (Left) |
| Expenses | Debit (Left) | Credit (Right) |
🔴 Advanced Level
Complex transactions and edge cases in double-entry accounting.
Compound Entry Example
Scenario: A company buys equipment for $10,000, paying $2,000 cash and signing a note payable for the remaining $8,000.
Equipment (Asset) increases by $10,000, Cash (Asset) decreases by $2,000, Notes Payable (Liability) increases by $8,000
Debit Equipment $10,000 (asset increase), Credit Cash $2,000 (asset decrease), Credit Notes Payable $8,000 (liability increase)
Debits: $10,000 = Credits: $2,000 + $8,000 = $10,000 ✓
Reversing Entries Example
Scenario: At month-end, you discover a $500 expense was mistakenly recorded as revenue.
Debit Expense $500, Credit Revenue $500
Debit Revenue $500, Credit Expense $500 (reverses the error)
Debit Revenue $500, Credit Cash $500 (assuming it was a cash expense)
🚫 Common Misconceptions & Professional Tips
✅ Reality: Debit and credit simply mean left and right. Whether it's positive or negative depends on the account type. Debiting cash (good) increases it, but debiting revenue (bad) decreases it.
✅ Reality: Credits increase liabilities, equity, and revenues, but they DECREASE assets and expenses. The direction of effect depends on the account's normal balance.
✅ Reality: Double-entry accounting requires AT LEAST one debit AND at least one credit for every transaction. The total debits must equal total credits.
🧠 Memory Aids & Quick Reference
Dividends, Expenses, Assets → DEBIT (Left)
Liabilities, Equity, Revenue → CREDIT (Right)
LEFT side. Increases Assets, Expenses, Dividends. Decreases Liabilities, Equity, Revenue.
RIGHT side. Increases Liabilities, Equity, Revenue. Decreases Assets, Expenses, Dividends.
Total Debits MUST always equal Total Credits. This ensures the accounting equation balances.
📖 Glossary
An entry on the left side of an account. Whether it increases or decreases the account depends on the account type.
An entry on the right side of an account. Whether it increases or decreases the account depends on the account type.
An accounting method where every transaction is recorded in at least two accounts, with equal debits and credits.
The side (debit or credit) that increases an account. Assets and expenses normally have debit balances. Liabilities, equity, and revenues normally have credit balances.
A journal entry that affects more than two accounts. Still must have equal total debits and total credits.
A journal entry that affects exactly two accounts - one debit and one credit. The most common type of entry.
A type of error where numbers are reversed (e.g., recording 52 as 25). This causes trial balance to be off by a multiple of 9.
🎯 Final Knowledge Check
Test your understanding of Debits, Credits, and Double-Entry:
Question 1: To increase a Revenue account, you should:
Question 2: Which accounts normally have a DEBIT balance?
Question 3: The DEALER mnemonic says D-E-A accounts increase with: