Debits and Credits

Master the language of accounting with the double-entry system

The Double-Entry System

Every transaction affects at least two accounts and must be balanced. For every debit entry, there must be an equal credit entry. This keeps the accounting equation in balance.

Key Principles:

  • Every transaction has equal debits and credits
  • Debits are recorded on the left side
  • Credits are recorded on the right side
  • Different account types have different rules
Professor Ledger explaining debits and credits with enthusiasm

Debit and Credit Rules

Account TypeDebit (Left Side)Credit (Right Side)Examples
AssetsIncreaseDecreaseCash, Equipment, Inventory
LiabilitiesDecreaseIncreaseLoans, Accounts Payable
EquityDecreaseIncreaseOwner's Capital, Retained Earnings
RevenuesDecreaseIncreaseSales, Service Revenue
ExpensesIncreaseDecreaseRent, Salaries, Utilities

Memory Aids

DEAD
Debits increase Expenses, Assets, Dividends
These accounts grow on the debit (left) side
GIRL
Gains, Income, Revenues, Liabilities
These accounts grow on the credit (right) side

T-Account Structure

Account Name
Debit (Dr.)
Left Side
Credit (Cr.)
Right Side

T-accounts are visual representations that help track increases and decreases in each account. The name comes from their T-like shape.

Practice with T-Accounts

T-Account Challenge: Cash Account

Drag each transaction to the correct side of the Cash T-account. Remember: debits increase cash, credits decrease cash.

Drag these transactions:

Received $1,000 cash from customer
$1,000
Paid $500 for office rent
$500
Owner invested $2,000 cash
$2,000
Took out $1,500 bank loan
$1,500
Bought $800 equipment with cash
$800

Congratulations! Course Complete

You've mastered the fundamental concepts of accounting: the accounting equation, financial statements, and debits and credits. You now have a solid foundation to build upon in your accounting journey!

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