Introduction to Debits and Credits

If the words "debits" and "credits" sound like a foreign language to you, you are more
perceptive than you realize"debits" and "credits" are words that have been traced back five
hundred years to a document describing today's double-entry accounting system.
Under the double-entry system every business transaction is recorded in at least two
accounts. One account will receive a "debit" entry, meaning the amount will be entered on the
left side of that account. Another account will receive a "credit" entry, meaning the amount will
be entered on the right side of that account. The initial challenge with double-entry is to know
which account should be debited and which account should be credited.
Before we explain and illustrate the debits and credits in accounting and bookkeeping, we will
discuss the accounts in which the debits and credits will be entered or posted.

What Is An Account?
To keep a company's financial data organized, accountants developed a system that sorts
transactions into records called accounts. When a company's accounting system is set up, the
accounts most likely to be affected by the company's transactions are identified and listed out.
This list is referred to as the company's chart of accounts. Depending on the size of a
company and the complexity of its business operations, the chart of accounts may list as few
as thirty accounts or as many as thousands. A company has the flexibility of tailoring its chart
of accounts to best meet its needs.
Within the chart of accounts the balance sheet accounts are listed first, followed by the income
statement accounts. In other words, the accounts are organized in the chart of accounts as
follows:

Assets

Liabilities

Owner's (Stockholders') Equity

Revenues or Income

Expenses

Gains

Losses

Click here to see a sample chart of accounts.

Double-Entry Accounting
Because every business transaction affects at least two accounts, our accounting system is
known as a double-entry system. (You can refer to the company's chart of accounts to select
the proper accounts. Accounts may be added to the chart of accounts when an appropriate
account cannot be found.)
For example, when a company borrows $1,000 from a bank, the transaction will affect the
company's Cash account and the company's Notes Payable account. When the company
repays the bank loan, the Cash account and the Notes Payable account are also involved.
If a company buys supplies for cash, its Supplies account and its Cash account will be
affected. If the company buys supplies on credit, the accounts involved are Supplies and
Accounts Payable.
If a company pays the rent for the current month, Rent Expense and Cash are the two
accounts involved. If a company provides a service and gives the client 30 days in which to
pay, the company's Service Revenues account and Accounts Receivable are affected.
Although the system is referred to as double-entry, a transaction may involve more than two
accounts. An example of a transaction that involves three accounts is a company's loan
payment to its bank of $300. This transaction will involve the following accounts: Cash, Notes
Payable, and Interest Expense.
(If you use accounting software you may not actually see that two or more accounts are being
affected due to the user-friendly nature of the software. For example, let's say that you write a
company check by means of your accounting software. Your software automatically reduces
your Cash account and prompts you only for the other accounts affected.)

Debits and Credits

After you have identified the two or more accounts involved in a business transaction, you must
debit at least one account and credit at least one account.
To debit an account means to enter an amount on the left side of the account. To credit an
account means to enter an amount on the right side of an account.

Here's a Tip
Debit means left
Credit means right
Generally these types of accounts are increased with a debit:
Dividends (Draws)
Expenses
Assets
Losses
You might think of D - E - A - L when recalling the accounts that are increased with a debit.
Generally these types of accounts are increased with a credit:
Gains
Income
Revenues
Liabilities
Stockholders' (Owner's) Equity
You might think of G - I - R - L - S when recalling the accounts that are increased with a credit.
To decrease an account you do the opposite of what was done to increase the account. For
example, an asset account is increased with a debit. Therefore it is decreased with a credit.
The abbreviation for debit is dr. and the abbreviation for credit is cr.

T-accounts
Accountants and bookkeepers often use T-accounts as a visual aid for seeing the effect of the
debit and credit on the two (or more) accounts. We will begin with two T-accounts: Cash and
Notes Payable.

Let's demonstrate the use of these T-accounts with two transactions:

1. On June 1, 2013 a company borrows $5,000 from its bank. This causes the company's
asset Cash to increase by $5,000 and its liability Notes Payable to also increase by
$5,000. To increase the asset Cash the account needs to be debited. To increase the
company's liability Notes Payable this account needs to be credited. After entering the
debits and credits the T-accounts look like this:

2. On June 2, 2013 the company repaid $2,000 of the bank loan. This causes the
company's asset Cash to decrease by $2,000 and its liability Notes Payable to also
decrease by $2,000. To reduce the asset Cash the account will need to be credited for
$2,000. To decrease the liability Notes Payable that account will need to be debited.
The T-accounts now look like this:

Here's a Tip
Whenever cash is received, the Cash account is debited (and another account is
credited).Whenever cash is paid out, the Cash account is credited (and another account is
debited

Normal Balances
When looking at a T-account for each of the account classifications in the general ledger, here
is the debit or credit balance you would normally find in the account:

Revenues and Gains Are Usually

Credited
Revenues and gains are recorded in accounts such as Sales, Service Revenues, Interest
Revenues (or Interest Income), and Gain on Sale of Assets. These accounts normally have
credit balances that are increased with a credit entry.
The exceptions to this rule are the accounts Sales Returns, Sales Allowances, and Sales
Discountsthese accounts have debit balances because they are reductions to sales.

Accounts with balances that are the opposite of the normal balance are called contra
accounts; hence contra revenue accounts will have debit balances.
Let's illustrate revenue accounts by assuming your company performed a service and was
immediately paid the full amount of $50 for the service. The debits and credits are presented in
the following general journal format:

Whenever cash is received, the asset account Cash is debited and another account will need
to be credited. Since the service was performed at the same time as the cash was received,
the revenue account Service Revenues is credited, thus increasing its account balance.
Let's illustrate how revenues are recorded when a company performs a service on credit (i.e.,
the company allows the client to pay for the service at a later date, such as 30 days from the
date of the invoice). At the time the service is performed the revenues are considered to have
been earned and they are recorded in the revenue account Service Revenues with a credit.
The other account involved, however, cannot be the asset Cash since cash was not received.
The account to be debited is the asset account Accounts Receivable. Assuming the amount of
the service performed is $400, the entry in general journal form is:

Accounts Receivable is an asset account and is increased with a debit; Service Revenues is
increased with a credit.

Expenses and Losses are Usually

Debited
Expenses normally have their account balances on the debit side (left side). A debit increases
the balance in an expense account; a credit decreases the balance. Since expenses are
usually increasing, think "debit" when expenses are incurred. (We credit expenses only to

reduce them, adjust them, or to close the expense accounts.) Examples of expense accounts
include Salaries Expense, Wages Expense, Rent Expense, Supplies Expense, and
Interest Expense.
To illustrate an expense let's assume that on June 1 your company paid $800 to the landlord
for the June rent. The debits and credits are shown in the following journal entry:

Since cash was paid out, the asset account Cash is credited and another account needs to be
debited. Because the rent payment will be used up in the current period (the month of June) it
is considered to be an expense, and Rent Expense is debited. If the payment was made on
June 1 for a future month (for example, July) the debit would go to the asset account Prepaid
Rent.
As a second example of an expense, let's assume that your hourly paid employees work the
last week in the year but will not be paid until the first week of the next year. At the end of the
year, the company makes an entry to record the amount the employees earned but have not
been paid. Assuming the employees earned $1,900 during the last week of the year, the entry
in general journal form is:

As noted above, expenses are almost always debited, so we debit Wages Expense, increasing
its account balance. Since your company did not yet pay its employees, the Cash account is
not credited, instead, the credit is recorded in the liability account Wages Payable. A credit to a
liability account increases its credit balance.
To help you get more comfortable with debits and credits in accounting and bookkeeping,
memorize the following tip:

Here's a Tip
To increase an expense account, debit the account.

Permanent and Temporary Accounts

Asset, liability, and most owner/stockholder equity accounts are referred to as "permanent
accounts" (or "real accounts"). Permanent accounts are not closed at the end of the
accounting year; their balances are automatically carried forward to the next accounting year.
"Temporary accounts" (or "nominal accounts") include all of the revenue accounts, expense
accounts, the owner drawing account, and the income summary account. Generally speaking,
the balances in temporary accounts increase throughout the accounting year and are "zeroed
out" and closed at the end of the accounting year.
Balances in the revenue and expense accounts are zeroed out by closing/transferring/clearing
their balances to the Income Summary account. The net amount in Income Summary is then
closed/transferred/cleared to an owner equity account, such as Mary Smith, Capital (or to
Retained Earnings if the company is a corporation). The owner drawing account (such as
Mary Smith, Drawing) is a temporary account and it is closed directly to the owner capital
account (such as Mary Smith, Capital) without going through an income summary account.
Because the balances in the temporary accounts are transferred out of their respective
accounts at the end of the accounting year, each temporary account will have a zero balance
when the next accounting year begins. This means that the new accounting year starts with no
revenue amounts, no expense amounts, and no amount in the drawing account.
By using many revenue accounts and a huge number of expense accounts, a company is
certain to have easy access to detailed information on revenues and expenses throughout the
year. This allows the management of the company to monitor the performance of all parts of
the company. Once the accounting year has ended, the need to know the balances in these
temporary accounts has also ended, so the accounts are closed out and reopened for the next
accounting year with zero balances.

Journal Entries
Another way to visualize business transactions is to write a general journal entry. Each general
journal entry lists the date, the account title(s) to be debited and the corresponding amount(s)
followed by the account title(s) to be credited and the corresponding amount(s). The accounts
to be credited are indented. Let's illustrate the general journal entries for the two transactions
that were shown in the T-accounts above.

When Cash Is Debited and Credited

Because cash is involved in many transactions, it is helpful to memorize the following:

Whenever cash is received, debit Cash.

Whenever cash is paid out, credit Cash.

With the knowledge of what happens to the Cash account, the journal entry to record the debits
and credits is easier. Let's assume that a company receives $500 on June 3, 2013 from a
customer who was given 30 days in which to pay. (In May the company recorded the sale and
an accounts receivable.) On June 3 the company will debit Cash, because cash was received.
The amount of the debit and the credit is $500. Entering this information in the general journal
format, we have:

All that remains to be entered is the name of the account to be credited. Since this was the
collection of an account receivable, the credit should be Accounts Receivable. (Because the
sale was already recorded in May, you cannot enter Sales again on June 3.)
On June 4 the company paid $300 to a supplier for merchandise the company received in May.
(In May the company recorded the purchase and the accounts payable.) On June 4 the
company will credit Cash, because cash was paid. The amount of the debit and credit is $300.
Entering them in the general journal format, we have:

All that remains to be entered is the name of the account to be debited. Since this was the
payment on an account payable, the debit should be Accounts Payable. (Because the
purchase was already recorded in May, you cannot enter Purchases or Inventory again on
June 4.)
To help you become comfortable with the debits and credits in accounting, memorize the
following tip:

Here's a Tip
To increase an expense account, debit the account.

Bank's Debits and Credits

When you hear your banker say, "I'll credit your checking account," it means the transaction will
increase your checking account balance. Conversely, if your bank debits your account (e.g.,
takes a monthly service charge from your account) your checking account balance decreases.
If you are new to the study of debits and credits in accounting, this may seem puzzling. After
all, you learned that debiting the Cash account in the general ledger increases its balance, yet
your bank says it is crediting your checking account to increase its balance. Similarly, you
learned that crediting the Cash account in the general ledger reduces its balance, yet your
bank says it is debiting your checking account to reduce its balance.
Although the above may seem contradictory, we will illustrate below that a bank's treatment of
debits and credits is indeed consistent with the basic accounting principles you learned. Let's
look at three transactions and consider the resultant journal entries from both the bank's
perspective and the company's perspective.

Transaction #1
Let's say that your company, Debris Disposal, receives $100 of currency from a customer as a
down payment for a future site cleanup service. When the money is received your company
makes the following entry:
(Debris Disposal's journal entry)

Because it has received cash, Debris Disposal increases its Cash account with a debit of $100.
The rules of double entry accounting require Debris Disposal to also enter a credit of $100 into
another of its general ledger accounts. Since the company has not yet earned the $100, it
cannot credit a revenue account. Instead, the liability account Unearned Revenues is credited
because Debris Disposal has a liability to do the work or to return the $100. (An alternate title
for the Unearned Revenues account is Customer Deposits.)
Now let's say you take that $100 to Trustworthy Bank and deposit it into Debris Disposal's
checking account. Trustworthy Bank debits the bank's general ledger Cash account for $100,
thereby increasing the bank's assets. The rules of double entry accounting require the bank to
also enter a credit of $100 into another of bank's general ledger accounts. Because the bank
has not earned the $100, it cannot credit a revenue account. Instead, the bank credits its

liability account Deposits to reflect the bank's obligation/liability to return the $100 to Debris
Disposal on demand. In general journal format the bank's entry is:
(Trustworthy Bank's journal entry)

As the entry shows, the bank's assets increase by the debit of $100 and the bank's liabilities
increase by the credit of $100. The bank's detailed records show that Debris Disposal's
checking account is the specific liability that increased.

Transaction #2
Let's say Trustworthy Bank receives a $1,000 wire transfer on your company's behalf from a
person who owes money to Debris Disposal. Two things happen at the bank: (1) The bank
receives $1,000, and (2) the bank records its obligation to give the money to Debris Disposal
on demand. These two facts are entered into the bank's general ledger as follows:
(Trustworthy Bank's journal entry)

The debit increases the bank's assets by $1,000 and the credit increases the bank's liabilities
by $1,000. The bank's detailed records show that Debris Disposal's checking account is the
specific liability that increased.
At the same time the $1,000 wire transfer is received at the bank, Debris Disposal makes the
following entry into its general ledger:
(Debris Disposal's journal entry)

As a result of collecting $1,000 from one of its customers, Debris Disposal's Cash balance
increases and its Accounts Receivable balance decreases.

Transaction #3
Many banks charge a monthly fee on checking accounts. If Trustworthy Bank decreases Debris
Disposal's checking account balance by $13.00 to pay for the bank's monthly service charge,
this might be itemized on Debris Disposal's bank statement as a "debit memo." The entry in the
bank's records will show the bank's liability being reduced (because the bank owes Debris
Disposal $13 less). It also shows that the bank earned revenues of $13 by servicing the
checking account.
(Trustworthy Bank's general ledger)

On your company's records, the entry will look like this:

(Debris Disposal's general ledger)

Debris Disposal's cash is reduced with a credit of $13 and expenses are increased with a debit
of $13. (If the amount of the bank's service charges is not significant a company may debit the
charge to Miscellaneous Expense.)

Bank's Balance Sheet

Accounts such as Cash, Investment Securities, and Loans Receivable are reported as
assets on the bank's balance sheet. Deposits are reported as liabilities and include the
balances in its customers' checking and savings accounts as well as certificates of deposit. In
effect, your bank statement is just one of thousands of subsidiary records that account for
millions of dollars in Deposits that a bank owes to its customers.

Recap
Here are some of the highlights from this major topic:

Debit means left.

Credit means right.

Every transaction affects two accounts or more.

At least one account will be debited and at least one account will be credited.

The total of the amount(s) entered as debits must equal the total of the amount(s)
entered as credits.

When cash is received, debit Cash.

When cash is paid out, credit Cash.

To increase an asset, debit the asset account.

To increase a liability, credit the liability account.

To increase owner's equity, credit an owner's equity account.

To increase revenues, credit the revenues account

To increase expenses, debit the expense account

DBITOS (DEBE) Y CRDITOS (HABER) A LAS CUENTAS:

CARGAR O DEBITAR (DEBE):
o Las Cuentas Reales o De Valores Activos, se Cargan o se Debitan cuando Reciben.
o Las Cuentas Reales o De Valores Pasivos y Capital, se Cargan o se Debitan cuando
Entregan.
o Las Cuentas Nominales o De Resultados Ingresos y Egresos, se Cargan o se Debitan
cuando representan Egresos por Costo de Ventas, por Gastos, por Otros Egresos o por
Prdidas en la Utilidad del Ejercicio (Disminucin del Patrimonio).
ABONAR O ACREDITAR (HABER):
o Las Cuentas Reales o De Valores Activos, se Abonan o se Acreditan cuando Entregan.
o Las Cuentas Reales o De Valores Pasivos y Capital, se Abonan o se Acreditan cuando
Reciben.
o Las Cuentas Nominales o De Resultados Ingresos y Egresos, se Abonan o se Acreditan
cuando representan Ingresos por Ventas, por Otros Ingresos o por Ganancias en la Utilidad
del Ejercicio (Aumento del Patrimonio).
RESUMEN DEL FUNCIONAMIENTO DE LOS DBITOS Y LOS CRDITOS:
CUENTAS DE ACTIVO - DE ORIGEN DEUDOR
Activo Circulante:
o Caja y Banco
de origen deudor
se debita cuando se registra la entrada de dinero ya sea en cheque o efectivo
se acredita cuando se registra la salida de dinero ya sea en cheque o efectivo
o Efectivo
de origen deudor
auxiliar de caja y banco
se debita si entra dinero en efectivo
se acredita si sale dinero en efectivo
o Caja Chica
de origen deudor
es auxiliar de caja y banco
se debita cada vez que entra dinero en la caja chica
se acredita cada vez que sale dinero de caja chica
se acredita para liquidar el fondo de caja chica

o Bancos
de origen deudor
auxiliar de caja y banco
se debita cada vez que entra dinero al banco
se acredita cada vez que sale dinero al banco
o Cuentas por Cobrar
de origen deudor
se debita cada vez que un cliente contrae una deuda con la empresa
se acredita cada vez que el cliente paga la deuda que tiene con la empresa
se acredita si el cliente abona a la deuda
o Documentos (Efectos) por Cobrar
de origen deudor
se debita cada vez que un cliente contrae una deuda con la empresa
se acredita cada vez que el cliente paga la deuda que tiene con la empresa
se acredita si el cliente abona a la deuda
o Inventarios
de origen deudor
se debita cuando la empresa compra materiales para vender
se acredita cuando se retira materiales para la venta, siempre y cuando se use mtodo
perpetuo para el registro de las operaciones
o Gastos Pagados por Anticipado
es una cuenta auxiliar
de origen deudor
se debita cuando se paga un gasto por anticipado
se acredita cuando se va consumiendo el gasto pagado por anticipado
Activos Fijos:
o Terrenos
de origen deudor
se debita cuando se adquiere un terreno
se acredita cuando se vende el terreno
o Edificios
de origen deudor
se debita cuando se compra un edificio
se acredita cuando se vende el edificio
o Depreciacin Acumulada Edificios
de origen acreedor por ser una contrapartida de la cuenta edificios
se debita cuando se vende el edificio
se acredita para ir acumulando la depreciacin del edificio
o Maquinarias y Equipos
de origen deudor
se debita cuando se adquiere maquinarias y equipos
se acredita cuando se venden las maquinarias y equipos

o Depreciacin Acumulada Maquinarias y Equipos

de origen acreedor por ser contrapartida de la cuenta maquinarias y equipos
se debita cuando se vende alguna maquinaria y equipo
se acredita para acumular la depreciacin de una maquinaria o un equipo
o Equipos de Transporte
de origen deudor
se debita cuando se adquiere un equipo de transporte
se acredita cuando se vende un equipo de transporte
o Depreciacin Acumulada de Equipo de Transporte
de origen acreedor por ser contrapartida de la cuenta equipo de transporte
se debita cuando se vende un equipo de transporte
se acredita para acumular la depreciacin de un equipo de transporte
CUENTAS DE PASIVO - DE ORIGEN ACREEDOR
Pasivo Circulante:
o Cuentas por Pagar
de origen acreedor
se debita cuando la empresa paga una deuda que tiene con terceros
se acredita cuando la empresa contrae una deuda
o Documentos por Pagar
de origen acreedor
se debita cuando la empresa paga una deuda que tiene con una empresa validada por un
documento
se acredita cuando la empresa contrae una deuda garantizada por un documento
o Retenciones por Pagar
de origen acreedor
se debita cuando la empresa paga la retencin que le hizo a los empleados
se acredita cuando la empresa retiene una parte del sueldo de sus empleados
CUENTAS DE PATRIMONIO - DE ORIGEN ACREEDOR
Capital
o Capital
es de origen acreedor
se acredita cada vez que la empresa vende acciones comunes
se debita cuando la empresa compra acciones de otra empresa
o Resultado del Perodo
es de origen acreedor
se debita para cerrar las cuentas de costos y gastos al final de un periodo contable
se acredita para cerrar la cuenta de ingresos
CUENTAS DE INGRESO
Producto de las Ventas:
o Ventas
es de origen acreedor

 se debita para cerrarla al final del periodo contable

se acredita para registrar la venta de una mercanca
o Ventas al Contado
Es de origen acreedor
es una cuenta auxiliar de la cuenta de ventas
se acredita para registrar la venta de una mercanca al contado
se debita para cerrarla al final de un periodo contable
o Ventas a Crdito
Es de origen acreedor
es una cuenta auxiliar de la cuenta de ventas
se acredita para registrar la venta de mercancas a crdito
se debita para cerrarla al final del periodo contable
CUENTAS DE EGRESO
Cuentas de Costos:
o Costo de Ventas
de origen deudor
se debita si se compra mercancas siempre y cuando se use el mtodo perpetuo para el
registro de operaciones
se acredita para cerrarla al final del perodo contable
Cuentas de Gastos:
o Gastos de Ventas
de origen deudor
es auxiliar de la cuenta de gastos de ventas
se debita siempre y cuando la empresa realiza un gasto relacionado con ventas
se acredita cuando se cierra al final del perodo
o Gastos de Administracin
de origen deudor
es auxiliar de la cuenta de gastos de administracin
se debita cuando la empresa realiza un gasto relacionado con Administracin
se acredita cuando se cierra al final del perodo
REGISTRO DE LAS OPERACIONES:
APLICAR LAS REGLAS O PRINCIPIOS DEL CARGO Y DEL ABONO:
Toda cuenta del Activo debe empezar con un Cargo, es decir, con una anotacin en el DEBE.
Como las cuentas del Activo empiezan con un Cargo, es natural que para aumentar su saldo
se debe cargar. En cambio, para disminuir su saldo se deben Abonar.
Toda cuenta del Pasivo debe comenzar con un Abono, o sea, con una anotacin en el
HABER.
Como las cuentas del Pasivo empiezan con un abono, es natural que para aumentar su saldo
se debe abonar. En cambio, para disminuir su saldo se deben cargar.
La cuenta del Capital debe empezar con un Abono, es decir, con una anotacin en el

HABER.
Como las cuentas del Capital empiezan con un abono, es natural que para aumentar su saldo
se debe abonar. En cambio, para disminuir su saldo se deben cargar.
EN RESUMEN:
SE DEBE CARGAR:
- Cuando aumenta el Activo
- Cuando disminuye el Pasivo
-Cuando disminuye el Capital
SE DEBE ABONAR:
- Cuando disminuye el Activo
- Cuando aumenta el Pasivo
- Cuando aumenta el Capital
FORMA EN QUE SE DEBE PROCEDER PARA REGISTRAR LAS OPERACIONES:
Para registrar las operaciones se deben realizar los siguientes pasos:
1. Se deben Analizar las Cuentas, es decir, se debe Determinar la Variacin que sufren cada
una de las cuentas afectadas.
2. Se deben Aplicar las Reglas del Cargo y del Abono.
MODO DE EXPRESAR CORRECTAMENTE LOS ASIENTOS DE DIARIO:
Para distinguir la contraposicin que guarda la cuenta de Cargo con respecto de la cuenta de
Abono, primero se escribe en el Asiento de Diario la cuenta de Cargo con su respectivo
monto, despus se escribe la cuenta de Abono con su respectivo monto.