Debit and credit

What it means

Debit and credit, in Slovak Má dať and Dal, are the two sides of every account in double-entry bookkeeping. Debit is the left side, credit the right, and every transaction is recorded with the same amount on the debit side of one account and the credit side of another. That is what double entry means.

Which side increases depends on the type of account. On asset and expense accounts increases go on the debit side and decreases on the credit side; on liability and equity and income accounts it is the other way round. A purchase of materials on invoice is debited to materials and credited to suppliers.

Total debits always equal total credits. The trial balance checks this balance, and if it does not agree there is an error in the books. International terminology uses the words debit and credit.

How it works in practice

In practice a journal entry is written as a pair of account numbers from the chart of accounts, for example 501/321. The first number is the debit side, the second the credit side. For recurring documents the software fills them in automatically from a posting template.

Clients meet these terms mostly in account statements and the subledger: for customers, the debit side shows what they owe us and the credit side what they have paid. For suppliers it is the reverse, so when agreeing balances we always explain from whose point of view the balance is seen.

Single-entry bookkeeping has no debit and credit, only receipts and payments. When switching to double entry we therefore carry the balances into the opening balance sheet and set up the accounts so that every balance sits on the correct side.

What to watch out for

Swapping the sides is a classic beginner’s mistake: an expense posted to the credit side reduces expenses instead of increasing them. The profit is then out by twice the amount, and the error is often found only when accounts are analysed at year end.

A balanced trial balance does not mean the books are right. If an entry goes to the wrong account the trial balance still agrees but the statements are wrong. Beyond the balance we therefore check what the accounts contain, and we correct errors with a correcting entry rather than by overwriting the original.