Debits and Credits
Definition
The two sides of every double-entry transaction. Debits increase assets and expenses and decrease liabilities, equity and income; credits do the reverse. Each transaction records equal debits and credits so the books stay balanced.
Common questions
Is a debit always good and a credit always bad?
No. Whether a debit or credit increases or decreases an account depends on the account type. A debit increases an asset but decreases a liability.
Related Terms in Accounting Principles
T-Account
A visual representation of a ledger account shaped like the letter T, with debits recorded on the left and credits on the right. It is a teaching and analysis tool for seeing how entries affect a single account.
Accounting Cycle
The repeating sequence of steps that turns transactions into financial statements: recording journal entries, posting to the ledger, preparing a trial balance, making adjustments, and producing and closing the statements each period.
Accounting Period
The span of time over which financial performance is measured and reported, such as a month, quarter or year. Consistent periods make results comparable across time.
Accrual vs Cash Basis
The two main accounting methods. Accrual basis records revenue when earned and expenses when incurred; cash basis records them only when money moves. Accrual gives a truer picture of performance, while cash basis is simpler.
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