Debits and Credits Explained: Rules, Examples and Cheat Sheet

In accounting, a debit is an entry on the left side of an account and a credit is an entry on the right side. Debits increase assets, expenses and owner's draws; credits increase liabilities, equity and revenue. Every transaction has at least one debit and one credit, and the totals are always equal. That's the whole idea behind double-entry bookkeeping.

If that sounds backwards, you're not alone. Below you'll learn the one equation that makes it all click, a memory trick for the rules, and eight real transactions recorded step by step, with a trial balance at the end to prove they balance.

Start with the accounting equation

Every business can be described with one equation:

Assets = Liabilities + Equity

Assets are what the business owns: cash, equipment, inventory, money customers owe you (accounts receivable).
Liabilities are what it owes to others: supplier bills (accounts payable), loans, credit cards.
Equity is what's left for the owner: money the owner invested plus profits kept in the business, minus what the owner took out.

Revenue increases equity and expenses decrease it, which is why they follow the same logic as equity, in the opposite direction. Debits and credits are simply the system that keeps both sides of this equation equal after every transaction.

The DEALER rule: an easy way to remember

DEA: increase with a DEBIT

Dividends (or owner's draws), Expenses, Assets.

Normal balance: debit. A credit decreases them.

LER: increase with a CREDIT

Liabilities, Equity, Revenue.

Normal balance: credit. A debit decreases them.

Account type	Increase with	Decrease with	Normal balance
Assets	Debit	Credit	Debit
Expenses	Debit	Credit	Debit
Owner's draws / dividends	Debit	Credit	Debit
Liabilities	Credit	Debit	Credit
Owner's equity	Credit	Debit	Credit
Revenue	Credit	Debit	Credit

"But my bank says a deposit is a credit!"

Your bank statement is written from the bank's point of view. Your deposit is money the bank owes you, a liability for the bank, so the bank credits it. In your books, that same deposit increases your cash, an asset, so it's a debit. Same transaction, opposite side of the table.

How to record a transaction in 3 questions

Question 1Which accounts are affected?There are always at least two. Example: buying equipment with cash affects Equipment and Cash.
Question 2Does each account go up or down?Equipment goes up. Cash goes down.
Question 3Debit or credit?Apply DEALER: an asset going up is a debit (Equipment); an asset going down is a credit (Cash). Check that debits equal credits.

8 worked examples: Bright Paws Dog Grooming

Sam opens a small dog grooming business. Here are the first month's transactions and the journal entry for each. In a journal entry, the debit is listed first and the credit is indented below it.

#	Transaction	Debit	Credit	Amount
1	Sam invests cash in the business	Cash	Owner's Capital	$10,000
2	Buys grooming equipment with cash	Equipment	Cash	$3,000
3	Buys supplies on credit from a vendor	Supplies	Accounts Payable	$500
4	Grooms dogs and is paid in cash	Cash	Service Revenue	$1,200
5	Invoices a kennel for services (to be paid later)	Accounts Receivable	Service Revenue	$800
6	Pays the month's rent	Rent Expense	Cash	$900
7	Pays the supplies vendor	Accounts Payable	Cash	$500
8	Sam takes money out for personal use	Owner's Draw	Cash	$400

Look at entry 5: Sam earned the revenue even though no cash came in yet, so revenue goes up (credit) and so does the money the customer owes (Accounts Receivable, debit). That's how accrual accounting works. And entry 7 doesn't touch any expense: the expense was the supplies, recorded in entry 3; entry 7 just settles the bill.

Following the Cash account (a T-account)

Cash: Debit (increases)	Cash: Credit (decreases)
(1) $10,000	(2) $3,000
(4) $1,200	(6) $900
	(7) $500
	(8) $400
Total $11,200	Total $4,800

Ending cash balance: $11,200 − $4,800 = $6,400 (a debit balance, as expected for an asset).

The trial balance: proof that it balances

Account	Debit	Credit
Cash	$6,400
Accounts Receivable	$800
Supplies	$500
Equipment	$3,000
Accounts Payable		$0
Owner's Capital		$10,000
Owner's Draw	$400
Service Revenue		$2,000
Rent Expense	$900
Totals	$12,000	$12,000

Debits equal credits, so the books balance. And the accounting equation holds too:

Assets      = $6,400 + $800 + $500 + $3,000 = $10,700
Liabilities = $0
Equity      = $10,000 + ($2,000 revenue − $900 rent) − $400 draw = $10,700
$10,700     = $0 + $10,700  ✓

A balanced trial balance isn't a perfect one

If you record a transaction in the wrong account, or forget it entirely, the totals still match. That's why bookkeepers also reconcile the books with bank statements every month.

Common mistakes

Thinking "debit" means bad and "credit" means good.

They just mean left and right. Whether it's an increase depends on the account type.

Using your bank's language in your books.

Your deposits are debits to Cash in your own records.

Recording the payment of a bill as a new expense.

If the bill was already recorded, the payment reduces Accounts Payable, not profit.

Treating owner withdrawals as an expense.

Draws reduce equity. They don't appear on the income statement.

Practice: try these three

Your turn

Record the debit and credit for each transaction:

A business takes out a $5,000 bank loan.
It pays a $120 internet bill with cash.
A customer pays an $800 invoice that was already recorded.

See the answers

Debit Cash $5,000 (asset up) / Credit Loans Payable $5,000 (liability up).
Debit Utilities Expense $120 (expense up) / Credit Cash $120 (asset down).
Debit Cash $800 (asset up) / Credit Accounts Receivable $800 (asset down). No revenue here: it was recorded when the invoice was sent.

Frequently asked questions

Is a debit positive or negative?
Neither. A debit increases some accounts (assets, expenses, draws) and decreases others (liabilities, equity, revenue).

Why must debits equal credits?
Because every transaction has two sides. If a business gets something, it either gives something up, takes on an obligation, or earns it. Recording both sides keeps the accounting equation in balance.

What is a normal balance?
It's the side where an account's balance usually sits: debit for assets and expenses, credit for liabilities, equity and revenue. A cash account with a credit balance, for example, signals an overdraft or an error.

Do I need to understand debits and credits if I use accounting software?
The software creates the entries for you, but understanding them helps you categorize transactions correctly, read your reports and spot mistakes before tax time.

Ready to put this into practice? Read our bookkeeping guide for small businesses to set up your books from scratch.

Learn bookkeeping and accounting step by step in our free bookkeeping course, with exercises and a downloadable template.