Explained
The words do not mean "increase" and "decrease", which is what confuses beginners most. Their effect depends on the kind of account: cash is an asset, so more of it is a debit; sales is income, so more of it is a credit. The two totals are always equal in every entry, which is what makes a trial balance balance.
Example
Collecting 1,000 from a customer: debit cash 1,000 (an asset rises), credit receivables 1,000 (another asset falls).
Related terms
- Double-entry bookkeepingDouble-entry bookkeeping records every financial effect in at least two accounts — a debit and a credit of the same amount.
- Journal entryA journal entry records one transaction in the books as equal debit and credit sides, with a date, a description and a reference.
- Chart of accountsA chart of accounts is the organised list of every account a business records its transactions in, arranged by type: assets, liabilities, equity, revenue and expenses.