Debits versus Credits
By Michael Reimer
Left Side is Right side
the debit
is the credit
side
side
 This is where all the daily
transactions of a business are
recorded.
 The general journal entries are
posted here.
 The account balances are updated
each day.
 Assets = Liabilities + Owner’s Equity
 Left side of the balance sheet
equation
 Normal asset balance is a debit
 Assets go up
with a debit
 Assets go down
with a credit
Assets
Debit Credit
 Properties or economic resources
 Provision of future company
benefits
 Cash
 Receivables
 Supplies
 Machinery
 Land
 Inventory held for sale
 Right side of the balance sheet
equation
 Normal liability balance is a credit
 Liabilities go up
with a credit
 Liabilities go
down with a
debit
Liabilities
Debit Credit
 Debts or payables owed by the
business
 A reduction of future assets of the
business
Accounts Payable
Notes Payable
Bank Loan Payable
Mortgage Payable
 Two Accounts:
 Capital: records the owner’s investment
in the business
 Withdrawals: records the owner’s
personal drawings from the business
 Capital goes up
with a credit
 Capital goes
down with a
debit
M. Reimer, Capital
Debit
Credit
M. Reimer,
 Withdrawals goes
Withdrawals
up with a debit
Debit
Credit
 Withdrawals goes
down with a
credit
 Is linked with another account
 Has an opposite balance to its
counterpart
 Reduces the value of its counterpart
 Revenues – Expenses = Profit or Loss
 Revenues go up
with a credit
 Revenues go
down with a
debit
Revenue
Debit Credit
 Two different types:
 Service based:
 Work provided to customers (Chapters 3 to 5)
 Retail based:
 Sales of inventory to customers (Chapter 6)
 Sales
 Commissions Earned
 Professional Fees Earned
 Rent Revenue
 Interest Earned
 Expenses go up
with a debit
 Expenses go
down with a
credit
Expenses
Debits Credits
 Incur costs while doing daily
business
 Show a consumption of assets to
generate revenues
 Advertising Expense
 Supplies Expense
 Telephone Expense
 Utilities Expense
 Wages Expense
 Rent Expense
 Insurance Expense
Left side is
the debit
side
Right side
is the credit
side
 Assets
 Withdrawals
 Expenses
 Liabilities
 Capital
 Revenues