Bookkeeping basics
Double entry
Equal debits and credits for every transaction.
Draft: not yet reviewed by a teacher
Why it exists
Every transaction has two sides: the business receives something and gives something up (or comes to owe it). Recording both sides keeps the accounting equation true after every transaction, and lets the trial balance catch many errors.
Key rules
- Debit is the left side of an account, credit the right. They are sides, not plus and minus.
- An increase in an asset, an expense or drawings is a debit (DEAD: Debit Expenses, Assets, Drawings).
- An increase in a liability, income or capital is a credit (CLIC: Credit Liabilities, Income, Capital).
- A decrease goes on the opposite side: paying a supplier debits payables.
- Every entry has total debits equal to total credits, even with more than two lines.
Examples
A repair on credit for a customer, 1,500:
- Dr Receivables 1,500 (an asset increases)
- Cr Sales 1,500 (income increases)
The customer pays 900:
- Dr Bank 900
- Cr Receivables 900
The customer still owes 1,500 − 900 = 600, a debit balance.
A van for 12,000: 9,000 from the bank, 3,000 owed to the dealer.
- Dr Motor vehicles 12,000
- Cr Bank 9,000
- Cr Other payables 3,000
Debit 12,000 = credits 9,000 + 3,000.
How it works
The accounting equation is assets = capital + liabilities. Assets sit on the left, so they increase on the debit (left) side. Capital and liabilities sit on the right and increase on the credit side. Income increases capital, so it is a credit too; expenses and drawings reduce capital, so they are debits.
That is why equal debits and credits always keep the two sides of the equation equal.