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.

Accounting 1 · Chapter 2: Debits & Credits — Free Interactive Course

Chapter 2 · The full lesson

Chapter 2: Debits & Credits — the full lesson

8 min read

The big secret: debit means left, credit means right

Almost everyone freezes the first time they meet debits and credits. The instinct is to translate debit as "bad" and credit as "good," or to assume a debit always means an increase. Let all of that go. In accounting a debit is simply the LEFT side of an account, and a credit is simply the RIGHT side. That is the entire secret, and once it clicks the whole chapter opens up.

Debit

The left side of an account. Nothing more — it is not inherently good, bad, an increase, or a decrease.

Credit

The right side of an account. Whether it raises or lowers the account depends only on what type of account it is.

Stop reading debit and credit as increase and decrease, and Chapter 2 becomes easy — because a single rule, coming up in a moment, tells you exactly which side increases each kind of account.

Every account has two sides

An account is just a record of everything that happens to one item — one account for Cash, one for Supplies, one for Service Revenue, and so on. Accountants sketch it as a capital T: the account name sits on top, the left side holds debits, the right side holds credits. That simple shape is why we call it a T-account.

T-account

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

Ledger

The entire group of accounts a business keeps, each holding the running balance of one item. The plain list of the account titles a company uses is its chart of accounts.

To find an account's balance, total each side and take the difference; the balance sits on the larger side. A Cash account with $20,000 of debits and $9,000 of credits has an $11,000 debit balance.

DEALER: the one rule that decides every entry

Here is the rule that runs the whole chapter. Sort the six kinds of accounts by the side that INCREASES them, and remember them with one word: DEALER.

D — Drawings increase with a DEBIT
E — Expenses increase with a DEBIT
A — Assets increase with a DEBIT
L — Liabilities increase with a CREDIT
E — Equity (Owner's Capital) increases with a CREDIT
R — Revenue increases with a CREDIT

The left three — Drawings, Expenses, Assets — go up on the left (a debit). The right three — Liabilities, Equity, Revenue — go up on the right (a credit). To DECREASE any account, use the opposite side. That single sentence answers "debit or credit?" for every transaction you will ever face.

Normal balance

The side that increases an account — which is also the side its balance normally sits on. Drawings, Expenses, and Assets are debit-normal; Liabilities, Equity, and Revenue are credit-normal.

Watch the trap

Owner's Drawings reduces equity, yet it is debit-normal — it lives on the D of DEALER. Don't let "it lowers equity" trick you into crediting it; a withdrawal is a debit to Drawings.

Double-entry: why debits always equal credits

Every transaction has two sides — something comes in, something goes out — so every entry touches at least two accounts. The golden rule: in every single entry, total debits must equal total credits. If they don't, the entry is wrong. This is the double-entry system, and it is exactly what keeps the accounting equation (Assets = Liabilities + Owner's Equity) in balance after each transaction.

The simplest entry

The owner invests $10,000 cash. Cash (an asset) goes up, so debit Cash $10,000. Owner's Capital (equity) goes up, so credit Owner's Capital $10,000. Debits $10,000 = credits $10,000 — perfectly balanced.

Journalizing: recording the entry

The journal is the book of original entry — the very first place a transaction is written, in date order. Recording it there is called journalizing, and the format never changes: the account debited is written first at the left margin; the account credited is written next and indented to the right; a short explanation can go underneath.

Journal

The chronological record where each transaction is first entered, as a debit and an equal credit.

Compound entry

A single entry that involves three or more accounts — still with total debits equal to total credits.

A compound entry

Buy $8,000 of equipment, paying $3,000 cash and signing a $5,000 note. Debit Equipment $8,000; credit Cash $3,000; credit Notes Payable $5,000. One debit, two credits — and $8,000 = $8,000.

Posting to the ledger

Journal entries do not update the accounts on their own. Posting is the step that copies each debit and each credit from the journal into the matching ledger (T-)account. After posting, every account shows its up-to-date balance. The order to remember is short and never changes: analyze the transaction, journalize it, then post it.

Finding a balance

If Cash is debited $10,000 (the investment) and later credited $3,000 (equipment) and $2,000 (rent), its ledger balance is $10,000 − $3,000 − $2,000 = $5,000 on the debit side.

The trial balance: proving debits = credits

At the end of the period you list every account and its balance in two columns — debit balances on the left, credit balances on the right — and total each column. This is the trial balance, and its job is to prove that the ledger's debits equal its credits. Match totals mean the books are in balance; a mismatch tells you an error exists somewhere.

Trial balance

A list of all the ledger accounts and their balances, used to check that total debits equal total credits.

One warning that shows up on every exam: a balanced trial balance does NOT mean the books are error-free. If you skipped a whole entry, posted to the wrong account, or recorded the wrong amount on both sides, the two columns still match. The trial balance catches only the errors that knock debits and credits out of balance.

Putting it together

Walk one business through the whole cycle. Suppose Northshore Design has three transactions in its first week: (1) the owner invests $15,000 cash; (2) the firm buys $2,000 of supplies on account; (3) it performs $4,000 of design work for cash.

Invest cash: debit Cash $15,000, credit Owner's Capital $15,000.
Supplies on account: debit Supplies $2,000, credit Accounts Payable $2,000.
Services for cash: debit Cash $4,000, credit Service Revenue $4,000.

Post them and the balances are: Cash $19,000 debit, Supplies $2,000 debit, Accounts Payable $2,000 credit, Owner's Capital $15,000 credit, Service Revenue $4,000 credit. Now the trial balance — debit column $19,000 + $2,000 = $21,000; credit column $2,000 + $15,000 + $4,000 = $21,000. They match, which is exactly what DEALER and double-entry guarantee.

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