Debit / Credit

When untrained people attempt their own bookkeeping, it’s usually the Debits and Credits that mess them up.  It’s called double-entry bookkeeping for a reason.  When a transaction occurs, at least two accounts must be involved (three accounts if you’re dealing with HST).

The general idea is to consider each transaction (or entry) as amounts that will either increase or decrease specific accounts, ie your bank, revenue and expense, etc. accounts. First things first, create a list of accounts you will need, known in accounting as the Chart of Accounts.  Depending on the type of account, an increase can be a debit or a credit. This is where it gets tricky.  Therefore use the chart provided below as a guide.

HINT: an entry can have two increases, two decreases or an increase and a decrease, as long as the debits and credits equal in dollar value, the transaction will balance.

And finally, don’t try and compare the debits and credits with what is showing on your bank statement, which will definitely confuse the issue, because when you put money in the bank, the bank statement will show this as a credit, whereas in your books, this increase to the bank is actually a debit.  Just try and remember the bank is always the opposite.  (There are some examples provide below the chart.)

Good luck, but don’t be shy to ask someone for help if needed.

Please note the GST noted is now known as HST.  You can download this Debit/Credit chart in two formats:


Example #1:       Paying rent

The entry is:
Rent Expense       Debit
Bank                Credit

The reason is:

Let’s follow the chart, rent is an expense, go to the last section of the chart EXPENSES and see that when an expense increases, it is a Debit entry.

The other side: we are probably paying by cheque, therefore the bank is also involved, bank is an ASSET, in the top section of the chart.  When an asset decreases, it is a Credit entry.

In this entry we have an increase and a decrease and in accounting a debit and a credit leaving you a balanced entry.

Example #2:      Selling a Good or Product, assuming the purchaser has an account and is therefore paying for it later.

The entry is:

Accounts Receivable        Debit

Sales                            Credit

The reason is:

The client is buying on account or paying later, which makes it an Accounts Receivable, which is an asset.  When an asset increases, it is a Debit.   A sale is considered Revenue or Income, which is shown as REVENUE on the chart.  When revenue increases, it is a credit.

In this entry we have two increases, but still one debit and one credit, everything is in balance.

Please note:  When using an accounting software package to maintain your records, the system will request you provide links to the common accounts (bank, Accounts Payable, Accounts Receivable, etc.) which will in turn allow the system to automatically record entries (behind the scene).  In all cases you can display the entry to review the debits and credits.