Debit and credit as directions

Two sides, not two values

Every account in accounting has two sides. The left side is called the debit side and the right side is called the credit side. That is the entire definition. Debit does not mean good, bad, money in or money out, and credit does not mean the opposite of any of those. They are positions on a page, and nothing more.

What each position does depends on the account. That is where the accounting equation earns its keep.

Where the rules come from

Write the equation with its sides marked:

Assets (left of the equal sign) = Owner's equity + Liabilities (right of the equal sign)

An element increases on the side of the equation it lives on.

Expenses and drawings sit under owner's equity but move it downwards, which is why they behave like the opposite of capital and income. An expense increases on the debit side because increasing an expense decreases the owner's claim.

The order to work in

Do not start with the words debit and credit. Start with the business.

1. What did the business receive or give up?
2. Which two elements moved, and up or down?
3. Only now convert each movement into debit or credit.

Working in that order means the label follows the reasoning instead of replacing it.

Three transactions, reasoned through

Worked example. Kagiso Mothibi opens a small printing business on 1 April.

1 April: the owner pays R25 000 capital into the business bank account. The business's money increased, so the asset Bank goes up, and assets increase on the debit side: debit Bank R25 000. The owner's claim on the business increased, and owner's equity increases on the credit side: credit Capital R25 000.

4 April: the business buys a printer for R3 200 and pays by EFT. The business now controls a printer, so the asset Equipment goes up: debit Equipment R3 200. The bank balance fell, and an asset decreases on the credit side: credit Bank R3 200.

7 April: wages of R1 800 are paid by EFT. The business incurred an expense, which reduces the owner's claim, and expenses increase on the debit side: debit Wages R1 800. The bank balance fell again: credit Bank R1 800.

Core checkpoint: for every transaction, one account is debited and another is credited, and the two amounts are identical. If you have written a debit without a matching credit of the same size, the entry is incomplete.