Bookkeeping Debit vs Credit: A Simple Guide for Business Owners
- Kim Elwell
- 4 days ago
- 3 min read
If you’re learning bookkeeping, the terms debit and credit can feel like a foreign language. But understanding bookkeeping debit credit rules is the foundation of accurate financial records. Whether you’re recording sales, paying expenses, or preparing for tax season, knowing how debits and credits work keeps your books balanced and your business on track.
In this guide, we’ll cover:
What debits and credits mean in bookkeeping
How debit and credit accounts work
Everyday debit and credit examples
Why getting bookkeeping right matters for your business
At BAS, we’ve been making bookkeeping clear and stress-free for over 50 years—so let’s break it down.
What Are Debits and Credits in Bookkeeping?
In bookkeeping debit credit entries, every transaction affects at least two accounts. One account is debited, and another is credited. This is called double-entry bookkeeping, and it ensures that your financial records always stay balanced.
Debit (Dr): Increases assets and expenses; decreases liabilities and equity.
Credit (Cr): Increases liabilities, equity, and revenue; decreases assets and expenses.
Think of it like this: a debit is money flowing into an account, while a credit is money flowing out—or vice versa, depending on the type of account.
Debit and Credit Accounts Explained
Not all accounts respond to debits and credits the same way. Here’s a simple cheat sheet:
Assets (cash, equipment, receivables): Debit ↑ / Credit ↓
Expenses (rent, payroll, supplies): Debit ↑ / Credit ↓
Liabilities (loans, payables): Debit ↓ / Credit ↑
Equity (owner’s capital, retained earnings): Debit ↓ / Credit ↑
Revenue (sales, service income): Debit ↓ / Credit ↑
👉 Quick tip: Use the DEALER rule to remember which accounts increase with debits vs credits:
Dividends, Expenses, Assets → increase with Debits
Liabilities, Equity, Revenue → increase with Credits
Debit vs Credit Cheat Sheet for Bookkeeping
Account Type | Debit Effect | Credit Effect | Example Transaction |
Assets (Cash, Equipment, Accounts Receivable) | Increases (↑) | Decreases (↓) | Buying new equipment → Debit Equipment, Credit Cash |
Expenses (Rent, Utilities, Payroll) | Increases (↑) | Decreases (↓) | Paying rent → Debit Rent Expense, Credit Cash |
Liabilities (Loans, Accounts Payable) | Decreases (↓) | Increases (↑) | Taking out a loan → Debit Cash, Credit Loan Payable |
Equity (Owner’s Capital, Retained Earnings) | Decreases (↓) | Increases (↑) | Owner invests money → Debit Cash, Credit Owner’s Equity |
Revenue (Sales, Service Income) | Decreases (↓) | Increases (↑) | Making a sale → Debit Cash, Credit Sales Revenue |
👉 Quick tip: Remember DEALER → Dividends, Expenses, Assets increase with Debits. Liabilities, Equity, and Revenue increase with Credits.
Debits and Credits Examples
Let’s see bookkeeping debit credit in action with some everyday business transactions:
Paying Rent
Debit: Rent Expense (increases)
Credit: Cash (decreases)
Receiving a Loan
Debit: Cash (increases)
Credit: Loan Payable (liability increases)
Making a Sale
Debit: Cash or Accounts Receivable (increases)
Credit: Sales Revenue (revenue increases)
Buying Office Supplies on Credit
Debit: Office Supplies (asset increases)
Credit: Accounts Payable (liability increases)
These examples show how every debit is balanced by a credit, keeping your books accurate.
Why Understanding Bookkeeping Debit Credit Matters
If you mix up debits and credits, even small errors can throw off your financial reports. That can mean:
Inaccurate profit and loss statements
Overlooked deductions at tax time
Frustration when reconciling bank accounts
Risk of IRS penalties
That’s why many business owners turn to BAS. We handle bookkeeping, debit credit entries, payroll, and tax services—so your records are always clean, accurate, and tax-ready.
Bookkeeping Made Simple
Understanding bookkeeping debit credit rules is essential for every business owner. Once you know how debits and credits impact your accounts, you can see the bigger picture of your finances with confidence.
At BAS, we’ve been helping small and mid-sized businesses with bookkeeping for over 54 years. From recording transactions to preparing taxes, we make sure your books stay balanced so you can focus on growth.