Debits and Credits: The Accounting Terms That Confuse Everyone (But Won’t After This Blog)
2025-04-01 00:00
If there’s one piece of accounting jargon that trips people up the most, it’s “debits and credits.” For non-accountants, those two little words seem to defy all logic. You might think a debit always means money going out, and a credit means money coming in… but surprise! In bookkeeping, it’s not that simple.
Let’s fix that.
Whether you're managing your business books on your own or trying to decode what your bookkeeper is doing, understanding debits and credits is key to making sense of your financial reports.
Don’t worry—we’re going to break it down in a way that makes sense and won’t make your brain hurt.
What Are Debits and Credits in Bookkeeping, Really?
Here’s the deal: in bookkeeping, debits and credits aren’t “good or bad,” “positive or negative,” or even “in or out.” They’re just two sides of the same coin. Every transaction affects at least two accounts, and each side of the entry gets either a debit or a credit.
Think of them like a seesaw. If one side goes up, the other goes down.
📌 Important rule: Debits and credits must always balance. That’s what keeps your books in order.
How Debits and Credits Work Across Different Account Types
To make sense of debits and credits, you’ve got to know how they affect different account categories. Let’s simplify it:
Account Type
Debit Increases
Credit Increases
Assets
✅
❌
Liabilities
❌
✅
Equity
❌
✅
Revenue (Income)
❌
✅
Expenses
✅
❌
Let’s say you buy office supplies with your business debit card. That’s an expense going up (debit), and cash (an asset) going down (credit). One side goes up, the other goes down.
Still with me? Great.
Every Transaction Has a Story (and a Debit and a Credit)
Here are some examples to help it click:
You make a sale:
Debit: Accounts Receivable (someone owes you)
Credit: Sales (you earned income)
You pay your internet bill:
Debit: Utilities Expense (expense goes up)
Credit: Bank (cash goes down)
You take out a loan:
Debit: Bank (you now have more cash)
Credit: Loan Payable (you owe someone)
So, it’s not about whether money is “coming in or going out.” It’s about which account is affected, and how.
Why Debits and Credits Matter for Your Business
You might be thinking, “Can’t I just leave this to my bookkeeper?” And sure—you can! But even if you’re not doing the day-to-day bookkeeping, knowing the basics of debits and credits helps you:
✅ Understand financial statements more clearly
✅ Ask smarter questions during your bookkeeping reviews
✅ Catch errors before they become tax-season headaches
✅ Feel less confused when looking at your general ledger
The better you understand how your transactions are categorized, the more confidence you’ll have in your numbers.
The Trial Balance: Where Debits and Credits Prove Their Worth
A trial balance is like the final check to make sure all your debits and credits match. If your books are in balance, you’ll see total debits equal total credits. If not, something’s off.
A good bookkeeper checks the trial balance regularly so they can catch errors before they snowball into reporting or tax issues.
Yep—double-entry accounting is where this all comes from. It’s the system that ensures your books stay balanced. Every transaction affects at least two accounts, and for every debit, there’s an equal credit.
This is why, in bookkeeping, we don’t just record money "in" and "out." We record where it’s going, and where it’s coming from.
It might feel overly technical at first, but it’s the most accurate way to track your business finances. That’s why it’s the gold standard for small businesses and global corporations alike.
Final Thoughts: You Can Totally Get This
You don’t need to be an accountant to understand debits and credits—just a business owner who wants to understand their books. The more you know, the more control you have over your business decisions.
Next time you look at your chart of accounts, you’ll know why expenses are debited, why sales are credited, and why everything needs to balance.
📌 Want help with your debits, credits, or anything else in your books?
Contact me at m.bol@mrm-bookkeeping to make your finances easier, cleaner, and stress-free. 🚀