Debits and Credits
Posted by Professor Cram in Accounting Cycle
Double Entry Accounting System
In a double entry accounting system, a Debit is any entry recorded on the left and a Credit an entry recorded on the right.
Debits and credits do not mean a decrease or increase. Debits and Credits are recorded as positive numbers.
Each account in a company's general ledger (as identified in the chart of accounts) has two columns — one for debits and one for credits. The type of account and which column the entry is posted in determines if it is a decrease or an increase.
The double entry requires each transaction to affect at least two entries, creating a balance within the system. Thus if one account is debited then another must be credited, allowing for a total of all debits and credits to be equal.
Balance Sheet Account quick reference:
| Account Type | Debits | Credits |
|---|---|---|
| The type of account determines whether a debit or a credit is a loss or gain. | On the Left | On the Right |
| Assets (cash) | gain + | loss - |
| Liabilities (accounts payable) | loss - | gain + |
| Owner's Equity (retained earnings) | loss - | gain + |
Income Statement Account quick reference
Revenue – Expenses = Income
| Account Type | Debits | Credits |
|---|---|---|
| The type of account determines whether a debit or a credit is a loss or gain. | On the Left | On the Right |
| Revenue | loss - | gain + |
| Expenses | gain + | loss - |
| Income | loss - | gain + |
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