Debit vs Credit (Accounting) - Explained
What is a Debit in Accounting?
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Table of ContentsWhat is a Debit?What is a Credit?How are Debits and Credits in Accounting Used?Special Considerations: Contra AccountsAcademic Research on Debits
What is a Debit?
In bookkeeping or accounting, a debit is a record in an account ledger that reflects an increase in assets or expenses or a decrease in a liability of equity account. It is always reflected on the left side of the account ledger. Debit is often abbreviated as Dr.
What is a Credit?
In bookkeeping or accounting, a credit is a record in an account ledger that reflects a decrease in assets or expenses or an increase in a liability of equity account. It is always reflected on the right side of the account ledger. Credit is often abbreviated as Cr.
The concept of debit and credit is found in the double-entry accounting.
How are Debits and Credits in Accounting Used?
When making entries in a standard journal, debits are recorded on the top lines while credits are recorded beneath them.
In order to ensure the balance and accuracies of all entries in an accounting ledger, the total debits and credits must always be equal. That is, both credits and debits are recorded in their dollar amounts and the total value of debits must amount to the total dollar value of all credits in a company's accounting ledger.
In finance and accounting, there are some accounts that are required to have natural balances, otherwise called normal balances. This balance can either be credit or debit or both.
The normal balance on the account is dependent on the debit and credit reflected in the account as well as the account equation. Both assets and expenses have normal debit balances, that is, the value of assets that are positive are debited while the negative values are credited.
Equity accounts, liabilities and revenues, on the other hand, have natural or normal credit balances and not debit balances. If they were to have debit accounts, the account balance will experience a decrease.
Special Considerations: Contra Accounts
In an account ledger, a contra account is a type of account that reduces the value of a related account and is displayed opposite the normal balance. In a debit entry, a contra account has a contradicting effect to the normal account. It is a special type of account that offsets the balance of the normal account to which it is paired. Hence, the natural balance of a contra account is directly opposite the paired or related account.