Debits and credits are part of double-entry accounting and bookkeeping. Recording a transaction in a double-entry system requires at least one account to have an amount entered as a debit—which means entered on the left side of an account. It also requires that at least one account will have an amount entered as a credit—which means entered on the right side of an account. Each transaction must have the total of the debit amounts equal to the total of the credit amounts.
To increase the balance in an asset or expense account, you enter an amount as a debit. To decrease the balance in an asset or expense account, you enter an amount as a credit.
Liabilities, revenues, and stockholders’ (owner’s) equity accounts are increased with a credit. They are decreased with a debit.
Here are five examples to illustrate debits and credits:
Periodically, a trial balance is prepared to prove that the total of the debit balances in the accounts is equal to the total of the credit balances in the accounts.
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