No financial transaction has only one side. If you paid cash, you received something for it; if you sold, goods left you and something came in. Double entry is not a complication invented by accountants — it is a faithful description of what actually happens.
1 What do debit and credit mean?
Debit means the left side of an account in the accounting convention, and credit the opposite side. They are technical terms that carry no sense of “good” or “bad”: a debit is not a debt and a credit is not a favour. They are simply two directions in which an effect is recorded.
The golden rule
In every transaction: total debits = total credits. If they are not equal, the entry is wrong.
2 When is an account debited and when credited?
Each of the five account types has a nature: some increase with a debit, others with a credit. Master this table and you master every entry:
| Account type | Increases with | Decreases with | Normal balance |
|---|---|---|---|
| Assets | Debit | Credit | Debit |
| Expenses | Debit | Credit | Debit |
| Drawings | Debit | Credit | Debit |
| Liabilities | Credit | Debit | Credit |
| Equity | Credit | Debit | Credit |
| Revenue | Credit | Debit | Credit |
A quick way to remember: assets, expenses and drawings increase with a debit; everything else — liabilities, equity and revenue — increases with a credit.
3 The shape of an account: the letter T
An account is usually drawn as the letter T: the account name on top, debit on one side and credit on the other, with the balance being the difference between them.
Cash balance = 115,000 − 46,000 = 69,000 (a debit balance)
4 Five steps to analyse any transaction
- Identify the two accounts the transaction affected.
- Identify the type of each account: asset? liability? revenue? expense? equity?
- Ask: did it increase or decrease?
- Apply the table: an increase in assets and expenses is a debit; in the others it is a credit.
- Confirm that debit = credit before you record the entry.
1) Furniture bought for cash, 20,000
Furniture is an asset that increased ← debit 20,000. Cash is an asset that decreased ← credit 20,000.
| Debit | Credit | Amount |
|---|---|---|
| Furniture | — | 20,000 |
| — | Cash | 20,000 |
2) Service sold on credit, 9,000
Receivables is an asset that increased ← debit 9,000. Revenue increased ← credit 9,000.
| Debit | Credit | Amount |
|---|---|---|
| Accounts receivable | — | 9,000 |
| — | Service revenue | 9,000 |
3) Part of a loan repaid in cash, 12,000
The loan is a liability that decreased ← debit 12,000. Cash is an asset that decreased ← credit 12,000.
| Debit | Credit | Amount |
|---|---|---|
| Bank loan | — | 12,000 |
| — | Cash | 12,000 |
5 The compound entry
The two sides need not be exactly two accounts. The debit side may be one account and the credit side two, or the other way round — this is called a compound entry. What matters is that total debits still equal total credits.
| Debit | Credit | Amount |
|---|---|---|
| Vehicle | — | 80,000 |
| — | Cash (down payment) | 30,000 |
| — | Vehicle finance loan | 50,000 |
A common mistake
Reversing the two sides of an entry. The trial balance will not catch this error because debits still equal credits — which is why entries must be reviewed for their meaning, not only for their balance.
Lesson summary
- Every transaction has two sides, debit and credit, and their totals are always equal.
- Assets, expenses and drawings increase with a debit.
- Liabilities, equity and revenue increase with a credit.
- Analyse the transaction in five steps before writing the entry.
- A compound entry is fine as long as the balance holds.
6 Test yourself
Three quick questions
Choose the answer you think is correct — the result appears immediately.
1. The business paid this month’s rent in cash. What is the correct entry?
The expense increased so it is debited, and cash is an asset that decreased so it is credited.
2. Which of the following accounts has a credit nature?
Payables are a liability, and liabilities have a credit nature and increase with a credit.
3. The business collected cash from a customer for an earlier credit sale. What is the effect?
The revenue was already recognised at the date of sale. Collection only converts one asset into another: cash rises and receivables fall.