debitcredit

Debit and credit are foundational concepts in double-entry accounting. In this system, every financial transaction is recorded with at least one debit entry and one credit entry for the same amount, keeping the books balanced. The terms describe sides on accounts, and their effect depends on the type of account affected.

The general rule is that debits increase asset and expense accounts and decrease liability, equity, and revenue accounts. Conversely, credits increase liability, equity, and revenue accounts and decrease asset and expense accounts. This means the impact of a debit or credit depends on the account category rather than a universal notion of “positive” or “negative.”

In practice, a transaction is recorded as a set of journal entries with debits totaling equal to credits. For example, buying equipment for cash would involve a debit to Equipment (an asset) and a credit to Cash (another asset) for the same amount. Billing a customer on account would debit Accounts Receivable and credit Revenue. Paying off a liability would debit the liability account and credit Cash. These entries flow into ledgers and generate financial statements.

The double-entry method helps ensure accuracy and provides a clear audit trail. It reflects the accounting equation (Assets = Liabilities + Equity) and is standard across modern accounting frameworks. The terms debit and credit have historical roots and remain central to recording and analyzing financial transactions.