Debits and Credits in Bookkeeping: Rules You Can Apply Every Time

The accounting equation as your debit/credit compass

Every journal entry must keep the accounting equation in balance:

Assets = Liabilities + Equity

Debits and credits are simply the method bookkeeping uses to record changes (increases and decreases) to accounts while keeping that equation true after every transaction.

T-accounts: the visual rule

A T-account is a quick way to see how debits and credits work:

Account Name
-----------------
Debit | Credit

Debit is always the left side. Credit is always the right side. Whether a debit means “increase” or “decrease” depends on the type of account.

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Translate the equation into debit/credit behavior

Think of the equation as two “sides.” Assets are on the left. Liabilities and Equity are on the right. The debit/credit behavior follows that structure:

• Left-side accounts (Assets): increases are recorded on the left (debit); decreases on the right (credit).
• Right-side accounts (Liabilities, Equity): increases are recorded on the right (credit); decreases on the left (debit).

Revenue and Expenses connect to Equity:

• Revenue increases Equity (so it behaves like Equity: increases with credits).
• Expenses decrease Equity (so they behave opposite of Equity: increases with debits).

Reference table: what increases/decreases each account type

A repeatable 4-step method (use every time)

• Step 1: Name the accounts affected. Identify at least two accounts (double-entry).
• Step 2: Classify each account. Asset, Liability, Equity, Revenue, or Expense.
• Step 3: Decide direction. For each account, ask: did it increase or decrease?
• Step 4: Apply the table. Convert increase/decrease into debit/credit; confirm total debits = total credits.

Worked example 1: Owner investment (owner puts cash into the business)

Scenario: The owner invests $5,000 cash into the business.

Step 1 (Accounts): Cash; Owner’s Capital (or Owner’s Equity).

Step 2 (Types): Cash = Asset. Owner’s Capital = Equity.

Step 3 (Direction): Cash increases. Equity increases.

Step 4 (Debits/Credits): Assets increase with a debit; Equity increases with a credit.

Journal entry:

Debit  Cash .................. 5,000
Credit Owner's Capital ....... 5,000

T-accounts:

Debit | Credit
5,000 |

Debit | Credit
      | 5,000

Equation check: Assets +5,000; Equity +5,000. Balanced.

Worked example 2: Paying rent (cash payment)

Scenario: The business pays $1,200 rent in cash.

Step 1 (Accounts): Rent Expense; Cash.

Step 2 (Types): Rent Expense = Expense. Cash = Asset.

Step 3 (Direction): Rent Expense increases. Cash decreases.

Step 4 (Debits/Credits): Expenses increase with a debit; Assets decrease with a credit.

Journal entry:

Debit  Rent Expense .......... 1,200
Credit Cash .................. 1,200

T-accounts:

Debit | Credit
1,200 |

Debit | Credit
      | 1,200

Equation check: Assets −1,200; Equity −1,200 (because expenses reduce equity). Balanced.

Worked example 3: Making a sale (cash sale)

Scenario: The business makes a $800 sale and receives cash immediately.

Step 1 (Accounts): Cash; Sales Revenue.

Step 2 (Types): Cash = Asset. Sales Revenue = Revenue.

Step 3 (Direction): Cash increases. Revenue increases.

Step 4 (Debits/Credits): Assets increase with a debit; Revenue increases with a credit.

Journal entry:

Debit  Cash ..................   800
Credit Sales Revenue .........   800

T-accounts:

Debit | Credit
800   |

Debit | Credit
      | 800

Equation check: Assets +800; Equity +800 (through revenue). Balanced.

Practice pattern: say it out loud

When you practice, use the same sentence structure each time:

• “Account A is a (type) and it (increases/decreases), so it is (debited/credited).”
• “Account B is a (type) and it (increases/decreases), so it is (debited/credited).”

This repetition trains you to apply the table automatically instead of guessing.

Quick-check questions (identify accounts and debit/credit)

For each item, list (1) the accounts affected and (2) whether each account is debited or credited.

• 1) The owner invests $2,500 cash into the business.
• 2) The business pays $300 for utilities in cash.
• 3) The business makes a $1,100 cash sale.
• 4) The business receives $600 cash from a customer for a sale.
• 5) The business pays $950 rent in cash.