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Debits and credits: double entry basics
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Double entry means every transaction is recorded twice: once as a debit and once as a credit. This starter sets out the rules before the full ledger lessons.
The T account
Each account (bank, sales, rent...) is drawn as a T.
The left side is the debit (Dr) side. The right side is the credit (Cr) side.
For every transaction, one account is debited and another is credited with the same amount.
The left side is the debit (Dr) side. The right side is the credit (Cr) side.
For every transaction, one account is debited and another is credited with the same amount.
The rules
Balancing an account
Add each side. The balance is the difference.
Bank account: debits 5 000 + 800 = 5 800; credits 600 + 1 200 = 1 800.
Balance = 5 800 − 1 800 = £4 000. It is written as balance c/d (carried down) on the smaller side, then balance b/d (brought down) on the debit side, because the debits are bigger: a debit balance.
Bank account: debits 5 000 + 800 = 5 800; credits 600 + 1 200 = 1 800.
Balance = 5 800 − 1 800 = £4 000. It is written as balance c/d (carried down) on the smaller side, then balance b/d (brought down) on the debit side, because the debits are bigger: a debit balance.
The owner pays £3 000 of her own money into the business bank account. Which account is debited and which is credited?
- Bank is an asset, and it increases: debit bank.
- Capital increases: credit capital.
Answer: Debit bank £3 000, credit capital £3 000
Every transaction has a debit and a credit of the same amount. Debit increases assets, expenses and drawings. Credit increases liabilities, income and capital. Balance = bigger side − smaller side.
The interactive lesson includes the diagrams for this topic.
Check you have got it
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