Accounting Tips to Remember Debits & Credits

Businesses require resources such as cash, labor and capital in order to set up, start, run and expand their operations. Such production resources can be acquired through incurring economic obligations to other entities -- either creditors or owners who choose to invest their personal resources into those businesses. Businesses use these resources in the course of producing their revenues and incurring expenses. In general, assets and expenses are recorded on the ledger as debits, while liabilities, equity and revenues are recorded as credits.


Debits and Credits
Debit means that the phenomenon is recorded on the left side of the ledger, while credit means that it is recorded on the right side. What is recorded as a debit and what is a credit can be puzzled out because each transaction impacts both debits and credits in equal measure, and its particular circumstances can be used to determine which accounts are affected. For example, a business collecting cash from its sales would record it as a debit to the asset account for cash, and it can be reasoned that the corresponding credit is to sales, which is a revenue account.

Assets, Liabilities and Equity
Assets, liabilities and equity are the items listed on the business's balance sheet. Assets are the resources used in business activities; liabilities are the debts incurred to acquire those resources, and equity is the portion of those resources invested into the business by its owners. An increase to an asset is a debit, and a decrease is a credit. The reverse is true for liabilities and equity. Assets are always equal to the sum of liabilities and equity.

Revenues and Expenses
Revenue and expenses are the phenomena listed on the business's income statement. Revenues are the sums the business receives in exchange for providing its customers with its goods and services, while expenses are the sums it spends in order to run its operations. An increase to revenues is a credit, and a decrease is a debit. The reverse is true for expenses.

Contra Accounts
Contra accounts are assets, liabilities, equity, revenue and expense accounts that possess normal balances opposite to that of normal accounts. For example, the contra-asset account used to represent an asset's accumulated depreciation has a normal credit balance because it is deducted from the asset to produce its remaining value. Debits and credits of contra accounts are simple to remember, because they are always the opposite of normal accounts of their kind. So a contra-liability would have a debit balance, much as a contra-expense account would have a credit balance.