Debits vs. Credits

Accountancy Resources

Debits vs. Credits



Credit And Debt Author: Admin

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Accounting lingo can get a bit confusing at times and nowhere quicker than debits vs. credits. Most business managers and individuals without a finance background have found themselves buried in a torrent of debit and credit conversations with their accountant at least a few times. Here’s a quick guide on what those mean. Debits and credits are the basis of double-entry bookkeeping, for every debit there is a credit. This shows that the impact of any form of transaction will have at least two impacts on the financial statements.

Debits and credits either reduce or increase the balance of an account, depending on the type of account.

DebitsCredits
Balance Sheet
  • Increase Asset Accounts
  • Decrease Liability Accounts
  • Decrease Equity Accounts
  • Increase Liability Account
  • Increase Equity Accounts
  • Decrease Asset Accounts
Income Statement
  • Increase Expense Accounts
  • Decrease Revenue Accounts
  • Increase Revenue Accounts
  • Decrease Expense Accounts

Now when your accountant tells you that he’ll credit the cash account and debit the liability account you know he’s talking about reducing cash and reducing the liability (he’s probably talking about paying a bill). This quick table should help you decipher some of the conversations and e-mails from your accountant.


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