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. When a figure on a report looks wrong, tracing the two sides of the entry behind it is a direct way to see whether the right accounts were used.

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.

The glossary also covers single-entry bookkeeping, which it ties to cash accounting systems and describes as capturing only a single side of each transaction. Its entries for debtor and creditor use the everyday sense of owing: a debtor is someone who owes the business money, and a creditor is anyone the business owes, such as a supplier or a lender.

Worked example

Illustrative example: the debits and credits for three everyday transactions
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.
Treating every credit on the bank statement as income, when some deposits are loans, transfers between accounts or refunds.
Using a manual journal to fix a transaction that should be corrected at its source, such as the original invoice or bill.

Common questions

Is an expense a debit or a credit?

An expense is recorded as a debit. An electricity bill, for example, debits the electricity expense account and credits the bank, or accounts payable if it is entered before being paid. A credit to an expense account reduces it, which happens with a supplier refund, a credit note or a correction. Expenses reduce profit, and profit belongs to equity, so debiting an expense has the same effect on the books as reducing equity. That is why expenses and equity sit on opposite sides.

Is a liability a debit or a credit?

A liability normally carries a credit balance. Taking out a loan or receiving a supplier's bill on account increases a liability with a credit, and paying it down reduces it with a debit. So when a business repays part of a loan's principal, the loan account is debited and the bank is credited. A liability account showing a debit balance, such as a supplier account where more was paid than owed, usually points to an overpayment or a missing bill.

Why do debits and credits have to be equal?

Because every transaction has two sides of the same value: what the business receives and where it came from, or what it gives up and what it gets in return. Recording both sides keeps assets equal to liabilities plus equity. The equal totals are also what make a trial balance useful as a check. If debits and credits did not have to match, there would be no simple way to tell that an entry was incomplete.

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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.