What Is a Debit? Debits and Credits Explained Simply

The Simple Definition

In double entry bookkeeping, every financial transaction is recorded in at least two accounts. A debit is an entry on the left side of an account, and a credit is an entry on the right side. Crucially, debits and credits do not mean 'increase' and 'decrease' in any universal sense — their effect depends entirely on the type of account being affected.

How Debits and Credits Affect Different Account Types

Assets: Debits increase assets, credits decrease them. When you receive cash, you debit the cash account. Liabilities: Credits increase liabilities, debits decrease them. When you take out a loan, you credit the loan liability account. Equity: Credits increase equity, debits decrease them. Retained profit increases equity via a credit. Revenue: Credits increase revenue accounts. When you make a sale, you credit revenue. Expenses: Debits increase expense accounts. When you pay rent, you debit the rent expense account.

The Golden Rules

A useful memory aid — DEAD CLIC: Debits increase: Expenses, Assets, Dividends. Credits increase: Liabilities, Income, Capital/Equity. Every transaction must have equal total debits and equal total credits — this is what keeps the accounting equation (Assets = Liabilities + Equity) in balance.

A Simple Example

A business sells goods for 1,000 cash. The entries are: Debit Cash 1,000 (asset increases) and Credit Revenue 1,000 (income increases). The books balance — total debits equal total credits. Now suppose those goods cost 600 to produce: Debit Cost of Goods Sold 600 (expense increases) and Credit Inventory 600 (asset decreases). Again balanced.

Why This Matters for ACCA and CIMA

Understanding debits and credits is the absolute foundation of all financial accounting. It underpins the ACCA FA (Financial Accounting) and MA papers, and the CIMA F1 paper. Every journal entry, every reconciliation, and every set of financial statements rests on this principle.