Debits, credits and account types

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What it is: Every account has two sides. The left side is called debit (Dr). The right side is called credit (Cr).

What the words mean: Debit means left. Credit means right. They do not mean good or bad. They do not mean money in or money out.

The rule to learn: Assets and expenses go up on the debit side. Liabilities, equity and income go up on the credit side. To make one of them go down, use the other side.

What you do: Every transaction has one debit and one credit of the same amount.

Example. A business receives £500 cash from a sale. Cash is an asset and it goes up, so debit Cash £500. Sales is income and it goes up, so credit Sales £500. Note: your bank statement uses the words the opposite way, because it is written from the bank’s point of view.

Key words

Debit (Dr): The left-hand side of an account. A debit increases an asset or expense account, and decreases a liability, income or capital account.Example: When a business pays £300 of rent, Rent is debited with £300.
Credit (Cr): The right-hand side of an account. A credit increases a liability, income or capital account, and decreases an asset or expense account.Example: When a business receives £1,000 of sales in cash, Sales is credited with £1,000.
Account: A record that collects every transaction for one item, such as cash, sales or rent. Each account has a debit (left) side and a credit (right) side.Example: The Rent account lists every rent payment in the year. Adding them up gives the total rent cost.
Balance: The difference between the total of the debit side and the total of the credit side of an account. It shows how much is left.Example: Cash account: £3,300 in (debit) and £450 out (credit). The balance is £2,850 debit, so the business has £2,850 of cash.

Learn

There are five types of account. The type tells you which side to use when the account goes up.

Type	What it is	Examples	To increase it	Its balance is usually
Asset	Something owned or owed to the business	Cash, inventory, equipment, trade receivables	Debit	Debit
Liability	Something the business owes	Trade payables, bank loan, accruals	Credit	Credit
Equity (capital)	The owner’s share	Capital, retained earnings	Credit	Credit
Income	Money the business earns	Sales, rent received, interest received	Credit	Credit
Expense	A cost of running the business	Rent, wages, purchases, depreciation	Debit	Debit

A way to remember it: DEAD CLIC

DEAD = Debit: Drawings, Expenses, Assets · CLIC = Credit: Liabilities, Income, Capital

This tells you the side that makes each account go up. To make an account go down, use the other side.

Example: The business pays £300 of wages in cash. Wages is an expense and it goes up, so debit Wages £300. Cash is an asset and it goes down, so credit Cash £300.

Why the rule works

In Assets = Liabilities + Equity, assets are on the left. So assets go up on the left side of an account (debit). Liabilities and equity are on the right. So they go up on the right side (credit). Income increases equity, so it also goes up on the credit side. Expenses and drawings reduce equity, so they go up on the debit side.

Remember. Debit only means left. Credit only means right. They do not mean good or bad.

Watch it explained

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Videos from YouTube tutors

These videos are made by independent tutors on YouTube, not by Trial Balance. They may use slightly different terms, for example “owner’s equity” instead of “capital”.

Worked example

The business pays £300 of wages from the bank.

Account	Type	Increase or decrease?	Side
Wages	Expense	Increase	Debit
Cash at bank	Asset	Decrease	Credit

One debit and one credit for the same amount, so the double entry balances.

Practice questions

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