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The short answer
Double-entry bookkeeping records every transaction in at least two accounts. One or more accounts receive a debit, one or more receive a credit, and the total of the debits always equals the total of the credits. “Debit” and “credit” are only names for the left and right side of an account: they do not mean good or bad, and neither word means “increase” on its own.
The method rests on the accounting equation: assets equal liabilities plus equity. The IASB Conceptual Framework defines an asset as a present economic resource controlled by the entity as a result of past events, a liability as a present obligation to transfer an economic resource, and equity as the residual interest in the assets after deducting all liabilities. Each entry changes the amounts on both sides by the same figure, so the equation still holds after every entry.
Which side increases which account
The usual convention is below. An account type increases on the side shown and decreases on the opposite side.
| Account type | Increases with | Examples |
|---|---|---|
| Asset | Debit | Cash, accounts receivable, inventory |
| Expense | Debit | Rent expense, cost of goods sold |
| Liability | Credit | Accounts payable |
| Equity | Credit | Owner’s capital |
| Income | Credit | Sales |
A worked example
A small trading company records these events in its first month. All figures are invented for illustration and taxes are left out. Each row names the account debited and the account credited.
| # | Event | Debit account | Credit account | Amount |
|---|---|---|---|---|
| 1 | The owner puts cash into the business | Cash | Owner’s capital | 10,000 |
| 2 | Goods are bought on credit from a supplier | Inventory | Accounts payable | 4,000 |
| 3a | Goods are sold on credit to a customer | Accounts receivable | Sales | 2,400 |
| 3b | The cost of the goods sold is recorded | Cost of goods sold | Inventory | 1,500 |
| 4 | Rent is paid in cash | Rent expense | Cash | 500 |
| 5 | The customer pays part of what it owes | Cash | Accounts receivable | 1,000 |
| 6 | The company pays part of what it owes the supplier | Accounts payable | Cash | 1,000 |
| Total | 20,400 |
Every row has the same amount on both sides, so the total of all debits (20,400) equals the total of all credits (20,400). Rows 3a and 3b come from one sale: the first records what the customer owes and the sale itself, the second moves the cost of the goods from inventory to expense. The next articles use these same events.
What the method gives you, and what it does not
Recording both sides gives a built-in check: if an entry has unequal sides, something was left out or mistyped. It also lets you read one transaction from two angles, for example the receivable that grows and the sales figure that grows. It does not prove that the right accounts or amounts were used. The next article, on the trial balance, explains that limit. Read the trial balance article.
In TexaCore
This section describes the product, not accounting in general. In the accounting module a journal entry has lines with a debit or credit amount, and the server refuses to post an entry whose debits and credits differ. Entries can be saved as drafts and posted later. Posted entries are protected from ordinary edits; one way to correct a posted entry is to reverse it with a written reason, and the reversal is recorded.
Documents create their own entries when you post them. Posting a sales invoice, for example, books the receivable and the revenue and, for stock items, the cost of sales and the inventory reduction. See accounting, sales and purchases and reports.
Scope of this article
This article explains general accounting principles using IFRS terms and an invented company. Tax and statutory rules differ by country and are not covered; check them with a qualified accountant.
FAQ
- Does a debit always mean an increase?
- No. A debit increases assets and expenses and decreases liabilities, equity and income. A credit does the opposite. The effect depends on the type of account.
- Why must total debits equal total credits?
- Each transaction is recorded with equal amounts on both sides, in at least two accounts. If the totals differ, an entry was recorded incompletely or with a wrong amount.
- Do I have to enter both sides myself in accounting software?
- Often not. Many documents, such as invoices, create their entries when they are posted. You still need to read the entries to check that the right accounts were used, and a manual journal entry needs both sides.
Sources
- Conceptual Framework for Financial Reporting — IFRS Foundation / IASBDefinitions of an asset, a liability and equity (2018 Framework).
- Financial Accounting (J. J. Weygandt, P. D. Kimmel, D. E. Kieso) — WileyThe accounting equation and the debit and credit rules, in the chapters on the recording process.
- Horngren's Financial & Managerial Accounting (T. Horngren, M. Tietz, S. Harrison, J. Miller-Nobles) — PearsonDouble-entry mechanics and journal entries.