What Is a Debit? Debits and Credits Explained Simply

Debits and credits are the foundation of double-entry bookkeeping — the system that underpins virtually all financial accounting. Yet they're one of the most commonly misunderstood concepts for people new to accounting, partly because the everyday meaning of "debit" and "credit" (as on a bank statement) is the opposite of how they work in bookkeeping. This guide explains what debits and credits really are, the rules that govern them, and how to apply them with confidence. For more foundational material, see our guides on double-entry bookkeeping and the accounting equation.

What are debits and credits?

In double-entry bookkeeping, every transaction affects at least two accounts, and is recorded with equal debit and credit entries so the books always balance. A debit is an entry on the left side of an account; a credit is an entry on the right side. Crucially, whether a debit or credit increases or decreases an account depends on the type of account. Debits and credits are not inherently "good" or "bad", and they don't mean "money in" or "money out" — they're simply the two sides of every recorded transaction. The total debits must always equal the total credits, which is what keeps the accounting system in balance.

The rules: how debits and credits work

The effect of a debit or credit depends on the account category. The core rules are:

• Assets — increased by a debit, decreased by a credit.
• Expenses — increased by a debit, decreased by a credit.
• Liabilities — increased by a credit, decreased by a debit.
• Equity (capital) — increased by a credit, decreased by a debit.
• Income (revenue) — increased by a credit, decreased by a debit.

A widely-used memory aid is DEAD CLIC: Debits increase Expenses, Assets and Drawings; Credits increase Liabilities, Income and Capital. Learning this framework makes it far easier to work out which side any transaction goes on without memorising every example individually.

Why the bank-statement meaning is the opposite

Many people are confused because their bank statement shows money received as a "credit" and money paid out as a "debit" — the reverse of what they'd expect from bookkeeping. The reason is a matter of perspective. The bank's statement is written from the bank's point of view, not yours. When you deposit money, you become a creditor of the bank (the bank owes you), so from the bank's perspective it credits its liability to you. In your own books, that same cash receipt is a debit to your asset (cash). Once you understand that bookkeeping entries reflect the perspective of the entity keeping the books, the apparent contradiction disappears.

A worked example

Suppose a business buys office equipment for £1,000, paying by bank transfer. Two accounts are affected. The equipment account (an asset) increases, so it is debited £1,000. The bank account (also an asset) decreases, so it is credited £1,000. Debits equal credits, and the books balance. If instead the business bought the equipment on credit, the equipment account would still be debited £1,000, but a liability account (trade payables) would be credited £1,000 to reflect the amount owed. Working through examples like this is the fastest way to make the rules feel intuitive.

Why debits and credits matter

Debits and credits are not just an academic exercise — they're the mechanism that ensures financial records are accurate and complete. Because every transaction must balance, double-entry provides a built-in error check: if total debits don't equal total credits, something has gone wrong. This system underpins the trial balance, the financial statements, and ultimately the reliability of the numbers that businesses, investors and regulators depend on. A solid grasp of debits and credits is essential for anyone studying accounting or working in finance, and it's a concept that appears throughout professional qualifications like ACCA.

Frequently asked questions

Is a debit positive or negative?

Neither inherently. A debit increases assets and expenses but decreases liabilities, equity and income. Whether it's "positive" depends entirely on the type of account.

What does DEAD CLIC stand for?

Debits increase Expenses, Assets and Drawings; Credits increase Liabilities, Income and Capital. It's a memory aid for which side each transaction goes on.

Why is a bank deposit a credit on my statement?

Because the statement is written from the bank's perspective. Your deposit increases the bank's liability to you, which it records as a credit. In your own books, the same deposit is a debit to cash.

Do debits always equal credits?

Yes. In double-entry bookkeeping, total debits must always equal total credits for every transaction and overall. If they don't, there is an error to find.

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