If you’ve already read our guide on What Is Double-Entry Bookkeeping?, you now understand the core principle behind modern accounting: every financial transaction affects at least two accounts.
The next step is learning how those transactions are actually recorded.
This is where debits and credits come in.
At first, the terms can seem confusing. Many people assume a debit means money leaving your account and a credit means money coming in. While that may be true when looking at a personal bank statement, accounting works differently.
In double-entry bookkeeping, debits and credits are simply the two sides of every financial transaction. Every transaction must include at least one debit and one credit, and the total value of both must always be equal. This system keeps your accounts balanced and forms the foundation of accurate financial reporting.
In this guide, you’ll learn:
- What debits and credits actually mean
- Why every transaction needs both a debit and a credit
- How different account types are affected
- Easy ways to remember the rules
- Real-world bookkeeping examples
- Common mistakes beginners make
By the end of this article, you’ll understand one of the most important concepts in bookkeeping and be ready to record basic business transactions with confidence.
f you’re new to bookkeeping, debits and credits can seem confusing at first.
Many people assume that:
- Debit means money out
- Credit means money in
In accounting, that’s not always true.
Instead, debits and credits are simply the two sides of every financial transaction. Once you understand how they work, you’ll find that recording business transactions becomes much easier.
In this guide, we’ll explain:
- What debits and credits are
- Why they exist
- How they affect different account types
- Common mistakes to avoid
- Easy ways to remember the rules
- Real-world examples
What Are Debits and Credits?
In double-entry bookkeeping, every transaction is recorded using:
- A debit
- A credit
Each transaction must have at least one debit and one credit, and the total value of debits must always equal the total value of credits.
For example, if you buy office furniture for £800 using your business bank account:
| Account | Debit | Credit |
|---|---|---|
| Office Furniture | £800 | |
| Bank | £800 |
The books remain balanced because the total debits equal the total credits.
Debits and Credits Are Not Good or Bad
One of the biggest misconceptions is that:
- Debits are bad.
- Credits are good.
This isn’t true.
A debit simply records an entry on the left-hand side of an account.
A credit records an entry on the right-hand side of an account.
Whether an account increases or decreases depends on the type of account—not whether it’s a debit or credit.
The Five Account Types
Every account belongs to one of five categories.
| Account Type | Increases With | Decreases With |
|---|---|---|
| Assets | Debit | Credit |
| Liabilities | Credit | Debit |
| Equity | Credit | Debit |
| Revenue | Credit | Debit |
| Expenses | Debit | Credit |
This table is one of the most important concepts in bookkeeping.
Understanding Assets
Assets are things your business owns.
Examples include:
- Cash
- Bank accounts
- Equipment
- Inventory
- Vehicles
- Accounts Receivable
Example
You receive £1,000 from a customer.
| Account | Debit | Credit |
|---|---|---|
| Bank | £1,000 | |
| Sales Revenue | £1,000 |
Your bank account (an asset) increases, so it is debited.
Understanding Liabilities
Liabilities are amounts your business owes.
Examples include:
- Bank loans
- Supplier invoices
- VAT payable
- Credit card balances
Example
You borrow £10,000 from a bank.
| Account | Debit | Credit |
|---|---|---|
| Bank | £10,000 | |
| Loan Payable | £10,000 |
The bank balance increases (debit), while the loan liability also increases (credit).
Understanding Equity
Equity represents the owner’s interest in the business.
Examples include:
- Owner’s Capital
- Retained Earnings
- Share Capital
If the owner invests £5,000 into the business:
| Account | Debit | Credit |
|---|---|---|
| Bank | £5,000 | |
| Owner’s Capital | £5,000 |
Understanding Revenue
Revenue is the income your business earns.
Examples include:
- Sales
- Service income
- Subscription fees
- Consulting income
Revenue always increases with a credit.
Understanding Expenses
Expenses are the costs of operating your business.
Examples include:
- Rent
- Wages
- Insurance
- Utilities
- Software subscriptions
- Marketing
Expenses increase with a debit.
Example
You pay £300 for office rent.
| Account | Debit | Credit |
|---|---|---|
| Rent Expense | £300 | |
| Bank | £300 |
Why Must Debits Equal Credits?
Double-entry bookkeeping is based on the accounting equation:
Assets = Liabilities + Equity
Every transaction changes one or more parts of this equation while keeping both sides balanced.
If your debits and credits don’t match, something has gone wrong.
Real-World Examples
Example 1 – Customer Pays an Invoice
A customer pays £500.
| Account | Debit | Credit |
|---|---|---|
| Bank | £500 | |
| Sales Revenue | £500 |
Example 2 – Buying Equipment
You purchase equipment costing £2,000.
| Account | Debit | Credit |
|---|---|---|
| Equipment | £2,000 | |
| Bank | £2,000 |
Example 3 – Paying Employee Wages
You pay wages of £1,500.
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | £1,500 | |
| Bank | £1,500 |
Example 4 – Taking Out a Loan
Your business receives a £20,000 loan.
| Account | Debit | Credit |
|---|---|---|
| Bank | £20,000 | |
| Loan Payable | £20,000 |
Example 5 – Paying a Supplier
You pay a supplier £800 for a previous invoice.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | £800 | |
| Bank | £800 |
The liability decreases, so it is debited.
Easy Ways to Remember Debits and Credits
Many students find mnemonics helpful.
DEAD
Debits increase:
- Expenses
- Assets
- Drawings
CLIC
Credits increase:
- Liabilities
- Income
- Capital (Equity)
DEALER
Another popular memory aid is:
Debit Increases
- Expenses
- Assets
- Losses
Credit Increases
- Equity
- Liabilities
- Revenue
Choose whichever mnemonic you find easiest to remember.
Common Mistakes
When learning debits and credits, avoid these common errors:
- Assuming debit always means money out.
- Assuming credit always means money in.
- Forgetting that every transaction needs at least two entries.
- Posting to the wrong account type.
- Recording only one side of a transaction.
Regularly reviewing your entries and reconciling your accounts can help you spot and correct mistakes early.
Final Thoughts
Debits and credits are the foundation of double-entry bookkeeping. While the terminology can seem intimidating at first, the rules are consistent once you understand how different account types behave.
Rather than memorising isolated rules, focus on identifying:
- Which accounts are affected.
- Whether each account is increasing or decreasing.
- Whether that increase or decrease requires a debit or a credit.
With practice, recording transactions becomes second nature.
New to bookkeeping? Start with our What Is Double-Entry Bookkeeping? guide to understand the fundamentals before learning how debits and credits work.
