Explained
A cash sale, for example, increases cash (debit) and sales (credit). Because both sides are always equal, the books stay in balance and arithmetic errors can be found. It underlies every modern accounting system.
Example
An invoice for 1,150 including VAT: debit receivables 1,150, credit sales 1,000, credit VAT payable 150.
Related terms
- Trial balanceA trial balance lists the balance of every account at a date, with total debits equal to total credits.
- General ledgerThe general ledger collects every posted movement for each account, and gives the balance of any account at any date.
- 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.