What Is a Debit Account?

The accounting industry uses a double-entry style accounting system consisting of debits and credits. These debits and credits create a self-balancing check system, ensuring that companies' financial information is recorded accurately.

Definition

Debit accounts represent the left side of a company's balance sheet. The financial information in these accounts represents assets owned by the company or financial obligations owed to the company.

Asset Accounts

Asset accounts are broken down into two groups: current and long-term. Current assets represent cash, inventory and account receivables. Long-term assets include property, plant and equipment (PPE).

Contra Asset Accounts

Companies may list contra asset accounts on the left side of their balance sheets. These contra accounts represent depreciation amounts for PPE assets, which reduce their accounting value as they are used during business operations.

Significance

High amounts of debit account assets usually mean that companies are performing well. Large amounts of account receivables or inventory may indicate companies are unable to collect money owed to them or are experiencing sluggish sales, respectively.

Warnings

Debit accounts should always have a positive balance. Negative amounts in debit accounts indicate poor accounting practices and will trigger financial audits.

References

• Accounting Coach: Balance Sheet - Assets
• MoneyInstructor.com: What are Debits and Credits?