Debit vs credit in accounting: a simple explanation
Debit and credit cheat sheet: the one rule to remember
| Account type | A debit | A credit |
|---|---|---|
| Assets (cash, equipment, money owed to you) | increases it | decreases it |
| Expenses and cost of goods sold | increases it | decreases it |
| Liabilities (money you owe) | decreases it | increases it |
| Equity (the owner's share) | decreases it | increases it |
| Income (sales) | decreases it | increases it |
A common memory trick is DEA-LER: Draws, Expenses and Assets go up with a debit. Liabilities, Equity and Revenue go up with a credit.
Debit and credit don't mean good or bad, and they don't mean money in or money out. They only mean left side and right side, which is why bookkeepers sketch accounts as a T-account.
Six examples from a small café
| What happened | Debit | Credit |
|---|---|---|
| The owner puts $5,000 into the business bank account | Checking $5,000 (asset up) | Owner's investment $5,000 (equity up) |
| The café pays $2,800 rent | Rent $2,800 (expense up) | Checking $2,800 (asset down) |
| A customer pays $36 cash for pastries | Checking $36 (asset up) | Sales $36 (income up) |
| The café invoices a customer $312, to be paid later | Accounts receivable $312 (asset up) | Sales $312 (income up) |
| That customer pays the $312 invoice | Checking $312 (asset up) | Accounts receivable $312 (asset down) |
| A supplier delivers $1,240 of coffee beans, to be paid next month | Cost of goods sold $1,240 (up) | Accounts payable $1,240 (liability up) |
Notice the fifth example: when a customer pays an invoice, income doesn't change. The sale was already counted when the invoice was sent.
Why your bank uses the words the other way round
When you deposit money, your bank statement says your account was credited. That's because the statement is written from the bank's side: your money is something the bank owes you, a liability for the bank, and liabilities go up with a credit. In your own books, the same deposit is a debit to your Checking account, because it's an asset for you.
How it looks as a journal entry
A journal entry lists the debits first and the credits underneath, indented:
| Account | Debit | Credit |
|---|---|---|
| Rent | $2,800 | |
| Checking | $2,800 |
In software like QuickBooks Online you rarely type entries like this. When you save an invoice, a bill or a payment, the software writes the entry for you. Knowing the rule lets you check its work.
Common questions
Is a debit good or bad?
Neither. A debit is just an entry on the left side of an account. Whether it makes the account go up or down depends on the type of account.
Does a debit mean money going out?
No. A debit to your Checking account means money came in. Money going out of Checking is a credit.
Why must debits equal credits?
Every transaction affects at least two accounts, and the accounting equation (assets = liabilities + equity) must stay balanced. Equal debits and credits keep it balanced.
Related guides
BookkeeperReady is an independent training product. It has not been approved, sponsored or endorsed by Intuit Inc. and is not affiliated with it. Intuit and QuickBooks are registered trademarks of Intuit Inc. Screens and prices in QuickBooks change; check Intuit's help pages for the latest details.