Accounts, debits, credits and double-entry recording
10 min read
Lesson objectives
- Determine increase and decrease directions for core account types under debit and credit rules.
- Convert a simple transaction analysis into a balanced double-entry journal entry.
- Distinguish an entry that balances from one that is economically correct.
Debit and credit: account sides, not value judgments
After analyzing a transaction, we need a consistent way to preserve its effect. Each type of item is accumulated in an account within the general ledger. Double-entry means that each transaction affects at least two accounts and total debit amounts equal total credit amounts in the entry. “Debit” and “credit” name recording sides; they do not mean good or bad, nor do they always mean increase or decrease by themselves.
| Account type | Increase normally recorded on | Decrease normally recorded on | Foundational normal balance |
|---|---|---|---|
| Assets | Debit | Credit | Debit |
| Liabilities | Credit | Debit | Credit |
| Equity | Credit | Debit | Credit |
| Income | Credit | Debit | Credit |
| Expenses | Debit | Credit | Debit |
| Owner withdrawals/distributions | Debit | Credit | Debit or contra-equity depending on structure |
The rule can be derived from the accounting equation rather than memorized in isolation. Assets sit on one side of the equation, so increases are debits. Liabilities and equity sit on the other side, so increases are credits. Income increases equity, so income increases are credits; expenses reduce equity, so increases in expense accounts are normally debits. This logic is useful when the table is forgotten.
Turn transaction analysis into a balanced entry
| Question | Pay supplier against existing payable 900 | Pay period rent in cash 1,200 |
|---|---|---|
| What decreases or arises? | Supplier liability decreases | No prior payable in the case; period expense arises |
| Debit | Accounts Payable 900 | Rent Expense 1,200 |
| Credit | Cash 900 | Cash 1,200 |
| Why different? | Settlement of an existing claim | Operating cost of the period under the stated facts |
Lesson summary
Double-entry links each transaction to two or more accounts so debit and credit amounts are equal. The direction of an increase depends on account type, not on everyday meanings of “debit” or “credit.” Every entry therefore needs two tests: arithmetic balance and faithful representation of the event.