courses › Accounting

Debits & Credits

level 22 course

The two sides of every entry, and which side makes each account grow.

In your head, jot if needed · no calculator why?

Opens at level 22.

Builds on: The Balance Sheet (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

Every entry in the books has two sides of equal size. The left side is the debit and the right side is the credit. Neither word means good or bad.

Which side makes an account grow depends on its type. Debits increase assets, expenses and owner's draws. Credits increase liabilities, equity and revenue. The other side shrinks them.

Your bank statement seems to say the opposite, because it shows the bank's own books: your deposit is money the bank owes you, so the bank credits it. In your books, cash going up is a debit.

Techniques

Two accounts, two directions

Recording any transaction.

Name the two accounts that change.
Say whether each goes up or down.
Assets, expenses and draws grow with a debit; the rest grow with a credit.
Both sides carry the same amount.

worked example

Example: A print shop has $2,000 in cash. It receives a $500 bank loan and pays $300 of rent in cash. What is its cash balance now?

Loan: debit Cash $500, credit Loan payable $500.
Rent: debit Rent expense $300, credit Cash $300.
Cash: $2,000 + $500 − $300 = $2,200.

Answer: $2,200

Balance the trial balance

One balance in a trial balance is missing.

A trial balance lists every account's balance; total debits must equal total credits.
Add up the side with nothing missing.
Subtract the known balances on the other side. What is left is the missing one.

worked example

Example: Debit balances: Cash $5,000, Equipment $3,000, Wages expense $2,000. Credit balances: Loan payable $4,000, Revenue $4,500, Owner's capital ?. What must Owner's capital be for debits to equal credits?

Debits: $5,000 + $3,000 + $2,000 = $10,000.
Known credits: $4,000 + $4,500 = $8,500.
Gap: $10,000 − $8,500 = $1,500.

Answer: $1,500

Tips by skill

TipWhich side increases it?: Name the account's type first. Debits grow assets, expenses and draws; credits grow liabilities, equity and revenue.
TipPick the entry: Name the two accounts and which way each moves. Collecting an invoice already recorded credits receivables, not revenue.
TipBalance the trial balance: Total the complete side, total the known balances on the other side, and take the difference.

Watch out for

Reading "credit" as money coming in, as on a bank statement. In your books, cash coming in is a debit.
Crediting revenue when a customer pays an invoice already recorded. That counts the same sale twice.
Crediting revenue for a loan or for owner money. Credit the loan or owner's capital instead.
Putting an expense on the credit side of a trial balance. Expenses carry debit balances.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

Which side increases it? par 9 s not tried yet
worked example
Which of these accounts would a $1,350 credit increase?
1. Owner's draw
2. Inventory
3. Wages payable
4. Wages expense
Answer: Wages payable
1. Debits increase assets, expenses, and draws; credits increase liabilities, equity, and revenue.
2. Wages payable is a liability, so a credit increases it. Debit just means left side, not bad.
Pick the entry par 14 s not tried yet
worked example
A customer pays $2,050 in cash for a service delivered today. Which entry records it?
1. Debit Cash $2,050 / Credit Revenue $2,050
2. Debit Accounts receivable $2,050 / Credit Revenue $2,050
3. Debit Cash $2,050 / Credit Accounts receivable $2,050
4. Debit Revenue $2,050 / Credit Cash $2,050
Answer: Debit Cash $2,050 / Credit Revenue $2,050
1. Cash (an asset) goes up: debit. Revenue goes up: credit. The service was delivered, so the sale is earned.
Balance the trial balance par 20 s not tried yet
worked example
Debit balances: Rent expense $3,400, Inventory $3,200, Accounts receivable $6,100. Credit balances: Revenue ?, Accounts payable $5,100. What must Revenue be for debits to equal credits?

Account Debit Credit
Rent expense $3,400
Inventory $3,200
Accounts receivable $6,100
Revenue ?
Accounts payable $5,100

Answer: $7,600.00
1. Debits total $12,700; the known credits total $5,100.
2. The gap is $12,700 − $5,100 = $7,600.

Account	Debit	Credit
Rent expense	$3,400
Inventory	$3,200
Accounts receivable	$6,100
Revenue		?
Accounts payable		$5,100

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

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