What are debits and credits?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Debits and credits are the two sides of every entry in double-entry bookkeeping. A debit is recorded on the left side of an account and a credit on the right. Debits increase asset and expense accounts, credits increase liability, equity and revenue accounts, and in every entry the debits and credits are equal in total.
Debit and credit do not mean good and bad, or money out and money in. They are positions, and whether one increases or decreases an account depends on its type. That is why a customer's deposit is a debit to the bank account in the business's books but shows as a credit on the bank statement: the bank records it from its own side, as money it owes the business.
Asset and expense accounts normally carry debit balances, and liability, equity and revenue accounts normally carry credit balances. To increase an account, an entry goes on its normal side; to decrease it, the entry goes on the opposite side. A supplier's bill recorded before it is paid, for example, is a credit to a liability account such as accounts payable.
Accounting software posts the debits and credits when an invoice, bill or bank transaction is entered, but knowing them makes a trial balance, a general ledger report or a manual journal much easier to read and check.
In Australia
business.gov.au's glossary describes a debit, in double-entry bookkeeping, as an entry on the left-hand side of a journal or ledger representing an asset or an expense. It describes double-entry bookkeeping itself as recording each transaction in two accounts, as both a debit and a credit.
The same glossary's entry for credit covers a different meaning of the word: the lending sense, where a customer buys a good or service now under an agreement to pay later, such as through a supplier account or a credit card.
Worked example
| Transaction | Account | Debit (AUD) | Credit (AUD) |
|---|---|---|---|
| Cash sale | Bank | 550.00 | |
| Sales | 550.00 | ||
| Rent paid | Rent | 1,800.00 | |
| Bank | 1,800.00 | ||
| Equipment bought on a supplier account | Equipment | 2,400.00 | |
| Accounts payable | 2,400.00 | ||
| Total | 4,750.00 | 4,750.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Assuming a debit always means money going out, because that is how bank statements use the word.
- Posting both sides of an entry as debits, or both as credits, so the trial balance no longer balances.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.