What are debits and credits in accounting?
Simply put, balancing a business’s books involves recording how money flows in and out of the business and ensuring the entries "balance" each other out. These bookkeeping entries, which appear on a company’s financial statement, are also referred to as debits and credits.
You may be asking: what’s the difference between a debit and a credit? In double-entry accounting, debits record incoming money, whereas credits record outgoing money. For every debit in one account, another account must have a corresponding credit of equal value.
What is a debit?
A debit entry increases an asset or expense account. A debit also decreases a liability or equity account. Thus, a debit indicates money coming into an account. In terms of recordkeeping, debits are always recorded on the left side, as a positive number to reflect incoming money.
What is a credit?
A credit entry increases liability, revenue or equity accounts or it decreases an asset or expense account. Thus, a credit indicates money leaving an account. You can record all credits on the right side, as a negative number to reflect outgoing money.
