The basis Accounting and Bookkeeping's rule is: Debits = Credits or

For Every Debit There Is A Credit

This rule is the basis for the double entry bookkeeping system.

Definitions of Debits and Credits

Debit (Left)

• An entry in the financial books of a firm that increases an asset, draw, or an expense or an entry that decreases a liability, owner's equity (capital) or income.
• Also, an entry entered on the left side (column) of a journal or general ledger account.

Let's combine the two above definitions into one complete definition. An entry (amount) entered on the left side (column) of a journal or general ledger account that increases an asset, draw or an expense or an entry that decreases a liability, owner's equity (capital) or revenue.

Credit (Right)

• An entry in the financial books of a firm that increases a liability, owner's equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense.
• Also, an entry entered on the right side (column) of a journal or general ledger account.

Let's combine the two above definitions into one complete definition. An entry (amount) entered on the right side (column) of a journal or general ledger account that increases a liability, owner's equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense.

This is where the key terms increase and decrease and the type of account (asset, liability, owner's equity, revenue, and expense) come into play. The term debit does not mean increase or decrease, nor does the term credit mean increase or decrease until the term is also associated with a type of account. In other words, debit does not always mean an increase nor does credit always mean a decrease , or vice versa. Also, the terms debit and credit do not refer to something good or bad.

How do Debits and Credits relate to our Accounting Equations ? They're the tools used to keep our equations balanced.

The Balance of the Left Side of the Equation (Asset Accounts) will normally have a DEBIT Balance and the Balance of the Right Side (Liability and Permanent Equity Accounts) will normally have a CREDIT Balance.

Left Side	Right Side
Property =	Property Rights
Assets =	Liabilities +	Owner's Equity
Debit Balances=	Credit Balances +	Credit Balances
Debit Increases	Credit Increases
Credit Decreases	Debit Decreases

Note that a debit increases the balances on the left side of the accounting equation (assets) and has the opposite effect and decreases the balances on the right side of the equation (liabilities and owner's equity). Likewise, a credit decreases the balances on the left side of the accounting equation (assets) and has the opposite effect and increases the balances on the right side of the accounting equation (liabilities and owner's equity).

Generally, anything that increases the left side of the equation (property or assets) or decreases the right side of the equation (property rights or liabilities and equity) is considered a debit and anything that increases the right side of the equation (property rights or liabilities and equity) or decreases the left side of the equation (property or assets) is considered a credit.

The terms have to be associated with the types of accounts in order to gain their meaning. In other words, whether a debit or credit is an increase or decrease depends on the type of account.

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