Master the fundamentals of double-entry bookkeeping with clear explanations, practical examples and journal entries.
What are debits and credits?
Debits and credits are the two sides of every double-entry bookkeeping transaction.
A debit is recorded on the left side of an account, while a credit is recorded on the right.
Remember: Every complete journal entry
must have equal total debits and credits.
How do debits and credits work?
| Account type | Debit increases | Credit increases |
|---|---|---|
| Assets | Yes | No |
| Expenses | Yes | No |
| Liabilities | No | Yes |
| Equity | No | Yes |
| Income | No | Yes |
Practical example
A UK business purchases office equipment for £500, paying immediately from its bank account. Assume VAT is not applicable.
| Account | Debit | Credit |
|---|---|---|
| Office Equipment | £500 | — |
| Bank | — | £500 |
| Total | £500 | £500 |
The equipment asset increases, while the bank balance decreases.
Common mistakes
- Assuming debit always means money received.
- Assuming credit always means money paid out.
- Recording only one side of a transaction.
- Confusing debits and credits with bank statements.
How does this work in accounting software?
Xero: Recording a transaction automatically updates the underlying ledger accounts.
QuickBooks: Transactions also create corresponding accounting entries behind the scenes.
Knowledge check
A business pays £200 of rent from its bank account. Which account is debited?
Answer: Rent Expense is debited £200, and Bank is credited £200.
Next step: Explore Journal Entries,
the General Ledger and the Trial Balance in our
Learning Hub.