Category

1.2. Debits & Credits

Theory

00:00 What are debits and credits;
00:28 Understanding the basics of debits and credits;
00:55 The double-entry systems;
01:24 How debits & credits affect different account types;
01:47 Quick method to remember debit & credit logic;
02:52 Components of a journal entry;
03:18 Debits & Credits: what to remember.

Key Terms & Definitions

Debit — An accounting entry recorded on the left side of an account. Used primarily to increase assets and expenses or decrease liabilities, income, and equity.

Credit — An accounting entry recorded on the right side of an account. Used primarily to increase liabilities, income, and equity or decrease assets and expenses.

Double-Entry Bookkeeping — An accounting system where every transaction affects at least two accounts and total debits must always equal total credits.

Accounting Equation — Assets = Liabilities + Equity. The core formula that all accounting transactions must follow and stay balanced.

Normal Balance — The side (debit or credit) where an account normally increases:

  • Debits increase: Assets, Expenses
  • Credits increase: Liabilities, Income, Equity

Journal Entry — The formal record of a transaction including the date, debit account, credit account, amounts, and description.

Trial Balance — A report listing all account balances used to verify that total debits equal total credits before preparing financial statements.

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