What it means
Debit does not mean decrease and does not mean bad. It is simply the left side of a T-account, and its effect depends on the type of account.
Assets and expenses have their normal balance on the debit side, so a debit increases them: buying equipment debits the equipment account; paying wages debits wages expense. Liabilities, equity and revenue have their normal balance on the credit side, so a debit decreases them: repaying a loan debits the loan account; a customer refund debits sales returns.
The system dates from the merchants of medieval Italy and survives because it is self-checking. Every entry has two sides that must agree, so a transaction recorded on only one side, or with unequal amounts, produces a trial balance that does not balance.
Errors of principle (the right amounts in the wrong accounts) can still slip through, which is why reconciliations and reviews exist, but arithmetic errors are caught automatically. A practical way to hold the rules is to picture the accounting equation.
Assets sit on the left and increase with left-side (debit) entries. Liabilities and equity sit on the right and increase with right-side (credit) entries.
Revenue increases equity, so it increases with credits. Expenses and dividends decrease equity, so they increase with debits.
Once that picture is in place, any transaction can be worked out: identify what increased or decreased, decide whether each item is an asset, liability, equity, revenue or expense, and the debits and credits follow. The banking usage runs the other way and confuses many people.
A bank debits your account when it takes money out, because your deposit is the bank's liability and a debit reduces a liability. In your own books, that same withdrawal is a credit to your cash account, because cash is your asset and a credit reduces an asset.
The two records describe the same event from opposite sides.
In practice
Real-world examples.
Example
A company buys a delivery van for $30,000 on finance: debit vehicles $30,000 (asset up); credit finance liability $30,000 (liability up).
Example
A customer pays an invoice: debit cash (asset up); credit accounts receivable (asset down).
Example
A business pays its quarterly sales tax: debit sales tax payable (liability down); credit cash (asset down).
Think of it
“Debits are like adding items to one side of a scale. Whatever you add must be balanced by changes on the other side.
Formula
Calculation
Total Debits = Total Credits, for each transaction and for the whole ledger
Normal balances: Assets and Expenses are debit balances; Liabilities, Equity and Revenue are credit balances
Worked example. A bakery records a week's transactions:
1. Buys $1,200 of flour and butter, paying cash. Debit inventory $1,200 (asset up); credit cash $1,200 (asset down).
2. Sells $4,500 of bread for cash. Debit cash $4,500 (asset up); credit sales revenue $4,500 (revenue up). Also, to record the cost of what was sold: debit cost of goods sold $1,500 (expense up); credit inventory $1,500 (asset down).
3. Pays staff $1,800. Debit wages expense $1,800 (expense up); credit cash $1,800 (asset down).
4. Repays $500 of a bank loan plus $20 interest. Debit bank loan $500 (liability down); debit interest expense $20 (expense up); credit cash $520 (asset down).
5. The owner takes $600 in drawings. Debit drawings $600 (equity down); credit cash $600 (asset down).
Check: total debits = $1,200 + $4,500 + $1,500 + $1,800 + $500 + $20 + $600 = $10,120; total credits = $1,200 + $4,500 + $1,500 + $1,800 + $520 + $600 = $10,120.
Net effect on cash: +$4,500 minus $1,200 minus $1,800 minus $520 minus $600 = +$380. Profit for the week: $4,500 minus $1,500 minus $1,800 minus $20 = $1,180.Case study
Seen in the real world.
A florist who had always kept a simple cash book moved to accounting software and set up her opening balances herself. She entered the $8,000 she owed to her main supplier as a debit to accounts payable, reasoning that "debit" meant money going out. The software dutifully showed a negative payables balance, which it interpreted as the supplier owing her $8,000, and her first balance sheet showed an asset that did not exist and equity $16,000 too high.
She also entered her van, worth $12,000, as a credit, turning it into a liability. Her accountant found both errors at the first quarter review because the trial balance had assets and liabilities that made no sense for a florist.
The corrections took ten minutes; the lesson took longer. She now enters transactions by choosing what happened in plain language (paid a supplier, received a payment, bought equipment) and lets the software assign the debits and credits, which is how most modern systems are designed to be used.
Watch out
Common mistakes.
- Assuming debit means decrease or money out. It increases assets and expenses; the bank's "debit" is the bank's view of its own liability.
- Recording a purchase of an asset as an expense, or the reverse. Both are debits, but they land in different statements.
- Forgetting the second entry. A debit with no matching credit unbalances the ledger.
Questions
People also ask.
Does a debit increase or decrease an account?
It increases assets and expenses, and decreases liabilities, equity and revenue.
Why does my bank statement show deposits as credits and withdrawals as debits?
Because the statement is written from the bank's side. Your deposit is the bank's liability; a credit increases it, a debit reduces it.
What is a debit balance?
A balance where debits exceed credits. It is normal for assets and expenses, and unusual for a liability (a debit balance in payables means a supplier has been overpaid).
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