Double entry bookeeping

• Debit will increase an asset

• Credit will increase a liability

• Debit will increase a draw

• Credit will increase an equity

• Debit will increase an expense

• Credit will increase a revenue

assets = liabilities + equity

• Sale for cash. Debit cash account | Credit revenue account

• Sale on credit. Debit accounts receivable account | Credit revenue account

• Cash payment for accounts receivable. Debit cash account | Credit accounts receivable account

• Purchase supplies with cash. Debit supplies expense account | Credit cash account

• Purchase supplies on credit. Debit supplies expense account | Credit accounts payable account

• Purchase inventory for cash. Debit inventory account | Credit cash account

• Purchase inventory on credit. Debit inventory account | Credit accounts payable account

• Pay employee salaries. Debit wages expense and payroll tax accounts | Credit cash account

• Take out a loan. Debit cash account | Credit loans payable account

• Repay a loan. Debit loans payable account | Credit cash account

1. What are debits and credits?

Debits and credits are terms used in double-entry bookkeeping to track the changes in each account. Whenever a transaction occurs, there will be two entries made, one on the debit side and one on the credit side. The total of the debits must always equal the total of the credits.

2. What are examples of debits and credits?

Some common examples of debits and credits include sales, cash payments, purchases, bank loans, and repayments.

3. What is the rule for debits and credits?

The basic rule for debits and credits is that all accounts that usually have a debit balance will increase when a debit is added and decrease when a credit is added.

Credit accounts include liabilities, equity, and revenue. All accounts that usually have a credit balance will increase when credit is added and decrease when a debit is added.

4. Is a payment a debit or credit?

Payment is a credit because it increases the asset (cash) and decreases the liability (accounts payable).

5. Why do debits and credits have to equal?

The debits and credits must be equal because every transaction has two entries, one on each side. The total of the debits must always equal the total of the credits for that transaction.

If the debits and credits don’t balance, it means that there is an error in the bookkeeping and the entry won’t be accepted. Therefore, most modern accounting software will only let you submit the entry if the debits and credits do balance.