What do "debit" and "credit" actually mean?

Debit = the LEFT side of an account; credit = the RIGHT side. That's all — not good or bad, and not "increase/decrease" by themselves.

What is the DEALER mnemonic?

It names the six account types and the side that INCREASES each. Debit side: Drawings, Expenses, Assets. Credit side: Liabilities, Equity, Revenue.

Which accounts increase on the DEBIT (left) side?

Drawings, Expenses, and Assets — the "DEA" of DEALER. A debit makes each of these go up.

Which accounts increase on the CREDIT (right) side?

Liabilities, Equity (Owner's Capital), and Revenue — the "LER" of DEALER. A credit makes each of these go up.

What is the normal balance of an ASSET?

Debit. Assets increase with debits, so they carry a normal debit balance (Cash, Supplies, Equipment).

What is the normal balance of a LIABILITY?

Credit. Liabilities increase with credits (Accounts Payable, Notes Payable, Unearned Revenue).

What is the normal balance of Owner's Capital?

Credit. Equity increases with credits, so Owner's Capital is credit-normal.

What is the normal balance of Owner's Drawings?

Debit. Drawings sit on the debit side of DEALER — a debit-normal balance — even though they reduce equity.

What is the normal balance of a REVENUE account?

Credit. Revenue increases equity, so it goes up with a credit and is credit-normal.

What is the normal balance of an EXPENSE account?

Debit. Expenses reduce equity and increase with debits, so they are debit-normal.

If a debit increases an asset, what decreases it?

A credit. The opposite side always decreases an account, so a credit reduces an asset such as Cash.

If a credit increases a liability, what decreases it?

A debit. Paying down Accounts Payable, for example, is recorded with a debit.

What is the double-entry system?

Every transaction affects at least two accounts, and total debits always equal total credits — so the books stay in balance.

Why must debits equal credits in every entry?

Because each transaction has two sides — something received and something given. Equal debits and credits keep the accounting equation balanced.

An individual record of the increases and decreases in one specific item, such as Cash or Service Revenue.

A simple two-sided form of an account: the title on top, debits on the left, credits on the right.

The entire group of accounts a business keeps. It holds the up-to-date balance of every account.

What is the chart of accounts?

The complete list of account titles (often with numbers) a company uses — usually ordered assets, liabilities, equity, revenues, expenses.

The book of original entry — where each transaction is first recorded, in date order, before it is posted to the ledger.

What does "journalizing" mean?

The act of recording a transaction in the journal as a debit and an equal credit.

In a journal entry, which account is written first?

The account debited, at the left margin. The credited account is written below it and indented to the right.

What is a compound journal entry?

A journal entry that involves three or more accounts, while still keeping total debits equal to total credits.

Transferring the journal entries into the individual ledger (T-)accounts.

What are the first steps of the recording process, in order?

Analyze the transaction, journalize it in the journal, then post it to the ledger.

What is a trial balance?

A list of all ledger accounts with their balances — debits in one column, credits in the other — used to check that total debits equal total credits.

What does a trial balance prove — and NOT prove?

It proves total debits equal total credits. It does NOT prove the books are error-free.

Name an error a trial balance will NOT catch.

Omitting a whole entry, posting to the wrong account, or recording the wrong amount in both halves — the columns still balance.

What does it mean if a trial balance does NOT balance?

At least one error has been made (such as a one-sided posting or a math slip). The two totals must be equal.

Entry: the owner invests $10,000 cash to start the business.

Debit Cash 10,000; Credit Owner's Capital 10,000. (Asset up, equity up.)

Entry: perform services for $2,000 cash.

Debit Cash 2,000; Credit Service Revenue 2,000. (Asset up, revenue up.)

Entry: perform $2,000 of services on account (bill the customer).

Debit Accounts Receivable 2,000; Credit Service Revenue 2,000. Revenue is recorded when earned, not when cash arrives.

Entry: collect cash from a customer you billed earlier.

Debit Cash; Credit Accounts Receivable. No new revenue — it was already recorded when earned.

Entry: buy $500 of supplies on account.

Debit Supplies 500; Credit Accounts Payable 500. (Asset up, liability up — nothing paid yet.)

Entry: pay $500 owed to a supplier.

Debit Accounts Payable 500; Credit Cash 500. (Liability down, asset down.)

Entry: pay the month's rent of $1,200 in cash.

Debit Rent Expense 1,200; Credit Cash 1,200. (Expense up, asset down.)

Entry: receive $1,500 cash in advance for future work.

Debit Cash 1,500; Credit Unearned Revenue 1,500. The work isn't done yet, so it's a liability, not revenue.

Entry: the owner withdraws $700 cash for personal use.

Debit Owner's Drawings 700; Credit Cash 700. Drawings is not an expense.

Entry: buy equipment for $6,000, signing a note payable.

Debit Equipment 6,000; Credit Notes Payable 6,000. (Asset up, liability up.)

Why is Owner's Drawings NOT an expense, even though it's debit-normal?

An expense is a cost of earning revenue. Drawings is just the owner taking value out of the business — it reduces equity directly.

How do you find an account's balance in a T-account?

Total the debit side and the credit side, then take the difference. The balance sits on the larger (normal) side.

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Accounting 1 · Chapter 2 · Free

Chapter 2 — Debits & Credits

The double-entry system at the heart of accounting — how debits and credits work and why every transaction stays in balance.

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What you'll learn

Explain the double-entry system and normal balances
Record transactions using debits and credits
Post journal entries to the ledger and prepare a trial balance

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Chapter 2 — Debits & Credits

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