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What are Debits and Credits?

Debits and credits are the two entries that make up every double-entry bookkeeping transaction. For every debit to one account, there must be an equal credit to another. Whether a debit increases or decreases an account depends on the account type: assets and expenses increase with a debit; liabilities, equity, and revenue increase with a credit.

The confusion around debits and credits comes from one fact: the same word means opposite things depending on the account type. For asset accounts (Cash, Equipment, Inventory), a debit increases the balance — that feels natural. But for liability accounts (Loans, Accounts Payable), a credit increases the balance, which feels counter-intuitive until you internalise the rule.

The practical shortcut: ALE — Assets, Liabilities, Equity. Assets increase with debits. Liabilities and Equity increase with credits. Revenue increases with credits (it builds equity). Expenses increase with debits (they reduce equity). Every transaction touches at least two accounts, and total debits must always equal total credits.

Example

When a shop pays its electricity bill of €200: Cash (an asset) is credited €200 (decreases), and Utilities Expense is debited €200 (increases). The books stay balanced because the same amount leaves one account and enters another.

Questions

Is a debit always positive?

No. For bank accounts, a debit increases your balance. For a loan, a debit reduces what you owe. The effect depends entirely on the account type — debit does not mean "good" or "add".

Why do debits and credits have to be equal?

Because of the accounting equation: Assets = Liabilities + Equity. Every transaction affects at least two accounts so the equation stays in balance. If debits and credits were unequal, the equation would break and the financial statements would not reconcile.

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