Debits and Credits Explained: Which Accounts Increase, Which Decrease, and How to Never Get It Wrong

Here is the entire debit and credit system in one table. Every transaction you will ever record follows these rules: Assets: increase with debits, decrease with credits. Liabilities: increase with credits, decrease with debits. Equity: increases with credits, decreases with debits. Revenue: increases with credits, decreases with debits. Expenses: increase with debits, decrease with credits. That is the whole system. Five account types, five rules. Every journal entry in the history of accounting follows this pattern. The reason students struggle is not that the rules are complex — they are not. The struggle is that debits and credits have no intuitive meaning in everyday language. A debit is not good or bad. A credit is not positive or negative. They are simply the left side (debit) and right side (credit) of an account. The rules above tell you which side increases each account type. The memory trick that works: assets and expenses are on the left side of the accounting equation (they are debit-normal accounts — they increase with debits). Liabilities, equity, and revenue are on the right side (they are credit-normal accounts — they increase with credits). Left side = debits increase. Right side = credits increase. If you remember which side of the equation an account lives on, you know the rule.

The rules are not arbitrary. They come directly from the accounting equation: Assets = Liabilities + Equity. This equation must always balance. Every transaction affects at least two accounts, and the debit/credit system ensures the equation stays balanced. Expand the equation to include revenue and expenses: Assets + Expenses = Liabilities + Equity + Revenue. Revenue increases equity (it makes the company worth more). Expenses decrease equity (they reduce the company's worth). But instead of recording revenue and expenses directly in the equity account, we give them their own accounts for tracking purposes. This expanded equation shows why assets and expenses are on the same side (left = debit-normal) and liabilities, equity, and revenue are on the same side (right = credit-normal). A concrete example: you provide $5,000 of services to a client on account (they will pay later). Two things happen: (1) the client owes you money, so Accounts Receivable (an asset) increases by $5,000 — debit Accounts Receivable. (2) You earned revenue, so Service Revenue increases by $5,000 — credit Service Revenue. Debits = $5,000. Credits = $5,000. The equation balances. Assets went up by $5,000 on the left, and Revenue (which feeds into Equity) went up by $5,000 on the right. Another example: you pay $800 for office supplies with cash. (1) Supplies (an asset) increases — debit Supplies $800. (2) Cash (an asset) decreases — credit Cash $800. Both are assets, but one goes up and one goes down. Debits still equal credits. The equation still balances because total assets have not changed — you just traded one asset (cash) for another (supplies).

Once you know the five rules, every journal entry becomes a mechanical exercise. Here are the 10 transactions you will see most often: 1. Owner invests cash: Debit Cash (asset up), Credit Owner's Capital (equity up). 2. Borrow money from bank: Debit Cash (asset up), Credit Notes Payable (liability up). 3. Purchase equipment for cash: Debit Equipment (asset up), Credit Cash (asset down). 4. Purchase supplies on account: Debit Supplies (asset up), Credit Accounts Payable (liability up). 5. Provide services for cash: Debit Cash (asset up), Credit Service Revenue (revenue up). 6. Provide services on account: Debit Accounts Receivable (asset up), Credit Service Revenue (revenue up). 7. Collect cash from customer who owed you: Debit Cash (asset up), Credit Accounts Receivable (asset down). 8. Pay rent: Debit Rent Expense (expense up), Credit Cash (asset down). 9. Pay salaries: Debit Salaries Expense (expense up), Credit Cash (asset down). 10. Pay off accounts payable: Debit Accounts Payable (liability down), Credit Cash (asset down). Notice the patterns. When an asset goes up, it is always a debit. When cash goes down, it is always a credit. When a liability goes up, it is always a credit. Revenue is always credited when earned. Expenses are always debited when incurred. You do not need to memorize 10 entries — you need to know 5 rules and apply them. If you get stuck on a tricky entry, snap a photo of the problem and AccountingIQ traces through the debit/credit logic for each account, showing you exactly which rule applies and why.

The most common debit/credit mistakes are not conceptual — they are careless pattern errors that are completely preventable. Mistake 1: reversing the entry. You know Cash should be debited but you write it as a credit. This happens when you are rushing. The fix: always write the debit entry first, indented to the left, and the credit entry second, indented to the right. The visual separation prevents reversals. On an exam, draw the T-accounts and post the entries — if the balance goes negative on the normal side, you reversed something. Mistake 2: confusing the company's perspective with the bank's. When your bank says it credited your account, that means your cash balance went up. But from the bank's perspective, your account is their liability (they owe you the money). A credit increases their liability. From your perspective, your cash (an asset) went up — which is a debit. This is why the bank says credit and you say debit for the same event. On exams, always record entries from the company's perspective, not the bank's. Mistake 3: forgetting that withdrawals (owner draws) are debits. Drawing cash out of the business reduces equity. Equity is credit-normal, so a decrease is a debit. The entry: debit Owner's Drawings (reduces equity), credit Cash (asset down). Students sometimes credit drawings because they think money going out should be a credit — but drawings is an equity contra account, and reducing equity is always a debit. Mistake 4: recording revenue when cash is received instead of when earned. If a client pays you $3,000 in advance for services you will perform next month, the entry is debit Cash, credit Unearned Revenue (liability — you owe the service). Revenue is NOT recognized until you perform the service. Crediting revenue on receipt violates the revenue recognition principle and overstates current-period income.