Simple Definitions of the Accounting Terms Debit & Credit

You can use an accounting book to record debits and credits.

We are so familiar with the banking system record-keeping, we have skewed the meaning of debit and credit. When we hear the term debit, we automatically think of a debit as negative and a credit as positive. The simple definition of debit and credit is the left and right side of a two-sided accounting entry. When you understand the meaning of debit and credit, you can move on to categorizing the accounts to determine how entries posted as debits or credits will affect the balance.

Type of Accounts

The type of account determines which side the balance increases and which side it decreases. Asset accounts increase on the debit side. This means the normal positive balance of the account will be on the debit side. Liability accounts increase on the credit side. The normal positive balance of this account will be on the credit side. Cash or your checking account is considered an asset. The mortgage on your home is considered a liability. If you were making accounting entries every month when you paid your mortgage, you would credit cash and debit your mortgage account.

Normal Account Balance

Debits and credits not only tell you to which column to post an amount, it also designates the normal balance of that account. The cash account would have a normal debit balance. After subtracting your credits from the debits, the balance should be positive. If your credits are more than your debits, you have a credit balance and are in the red. Your mortgage account has a normal credit balance because it is a liability.

Example

Take a look at your check register. This is the book you use to record your transactions involving your checking account. Notice the columns you use to write the amounts you spend and deposit. The left side of the column shows a (-): this means numbers in this column are negative or decrease the balance in this account. The right column has a (+), meaning this column is positive and increases the balance in this account.

Bank Perspective

To the bank, your checking account is a liability. The cash that you deposit in your checking account is payable upon demand. This means the bank has to pay out the cash if you have it available in your account and you authorize the purchase. The bank will debit or decrease your checking account and credit or increase the cash account of the receiving party.

Simply Left or Right

The simple definition of debit is the left side and credit is the right side. Each transaction in double-entry accounting has a debit and credit that equals. Instead of making some numbers positive and some numbers negative, two columns are used to record the transactions. All the numbers are positive. The side you record the transaction on and the type of account lets you know if the amount is to be added or subtracted.

References

• "Introduction to College Accounting"; Gregory W. Bischoff; 1992