JournaldrillDebits and credits
A debit (Dr) is the left side of a journal entry and a credit (Cr) is the right side. Debits increase assets, expenses and dividends or draws; credits increase liabilities, equity and revenue. In every entry total debits equal total credits, which is what keeps the books in balance.
Syntax
Dr Account (increase assets, expenses, dividends) / Cr Account (increase liabilities, equity, revenue)| Part | What it is |
|---|---|
Assets | Debit to increase, credit to decrease. Normal balance: debit. |
Expenses | Debit to increase, credit to decrease. Normal balance: debit. |
Dividends / Drawings | Debit to increase. Normal balance: debit. |
Liabilities | Credit to increase, debit to decrease. Normal balance: credit. |
Examples
Dr Cash 5,000 / Cr Service Revenue 5,000Result: Assets up 5,000, revenue (equity) up 5,000
Cash is an asset, so it is debited to increase it; revenue is credited to increase it.
Dr Rent Expense 1,200 / Cr Cash 1,200Result: Expenses up 1,200, assets down 1,200
An expense is debited; the asset paid out is credited.
Dr Accounts Payable 800 / Cr Cash 800Result: Liabilities down 800, assets down 800
Paying a liability debits it (decrease) and credits cash (decrease).
Common mistakes
- Treating debit as always good and credit as always bad: debit and credit only mean left and right, and the effect depends on the account type.
- Crediting an expense when it is paid: paying rent debits Rent Expense and credits Cash, never the other way round.
- Mixing up the bank statement view with the company view: the bank credits your account when you deposit because your deposit is a liability to the bank, but in your own books cash is debited.
- Writing an entry where debits and credits do not match: every entry must balance, so re-add both columns before posting.
Practice Debits and credits
These drills check your answer on live data, free, no account needed.
- Owner investmentMaria Rivera opens Rivera Lawn Care, a sole proprietorship, by depositing $15,000 of her personal savings into the business checking account.
- Cash sale of servicesPinecrest Tutoring finishes a week of tutoring sessions and receives $850 in cash from parents at the end of the last session.
- Paying rent and utilitiesOn October 31, Summit Yoga Studio writes two checks: $2,100 for October rent on its studio space and $340 for the October electricity bill. Neither amount was recorded earlier. Record both payments in one compound entry.
Questions
Is a debit an increase or a decrease?
It depends on the account. A debit increases assets, expenses and dividends, and decreases liabilities, equity and revenue.
What does DEALER stand for in accounting?
DEALER is a memory aid: Dividends, Expenses and Assets have debit normal balances; Liabilities, Equity and Revenue have credit normal balances.
Why does my bank say credit when I deposit money?
The bank records your deposit from its own point of view, where your balance is a liability it owes you, so it credits that liability. In your books the same deposit is a debit to Cash.
Related
- Journal entry formatThe standard journal entry format: date, debit accounts first, credits indented, amounts in two columns and a short explanation. Simple and compound examples.
- Trial balanceA trial balance lists every ledger balance and checks that debits equal credits. Steps to prepare it, a worked example and how to find the error.
- Owner investmentHow to record an owner investing cash or equipment: debit the asset received, credit Owner's Capital or Common Stock. Examples and common mistakes.
- Cash saleHow to record a cash sale: debit Cash, credit Sales or Service Revenue. For merchandise under a perpetual system add Dr Cost of Goods Sold, Cr Inventory.