starter · Lesson 3 · 10 min
Debits and credits
Debit is left, credit is right. The side that increases an account is its normal balance.
Dotted words have a reminder. Hover on a computer, tap on a phone.
Drop the English
In everyday speech “credit” means money in and “debit” means money out. In the ledger those words only mean left and right. A debit can increase cash (an asset) or increase rent (an expense). A credit can increase a loan (a liability) or increase sales (revenue). Learn the account’s type, then the side.
| Account type | Increases with | Decreases with | Normal balance |
|---|---|---|---|
| Assets (including bank) | Debit | Credit | Debit |
| Expenses and cost of sales | Debit | Credit | Debit |
| Owner drawings | Debit | Credit | Debit |
| Liabilities | Credit | Debit | Credit |
| Equity / contributions | Credit | Debit | Credit |
| Revenue | Credit | Debit | Credit |
| Contra-assets (accum. depreciation) | Credit | Debit | Credit |
The T-account
A T-account is one ledger account drawn as a T: debits on the left, credits on the right. The balance is the difference, sitting on the heavier side. You will use T-accounts in drills even though Xero never shows you one — they are how you think when a reconciling item will not sit still.
| Account | Debit | Credit |
|---|---|---|
| 6000 Rent | $1,800.00 | |
| 1000 Checking | $1,800.00 | |
| Totals | $1,800.00 | $1,800.00 |
Compound journals
A journal may have many lines. The only test is that the sum of debits equals the sum of credits. A $1,060 sale at 6% tax (we’ll use a round 6% in drills; Connecticut’s general rate is 6.35%) is three lines: receivable, revenue, tax payable.
| Account | Debit | Credit |
|---|---|---|
| 1100 Accounts receivable | $1,060.00 | |
| 4000 Landscape services | $1,000.00 | |
| 2200 Sales tax payable | $60.00 | |
| Totals | $1,060.00 | $1,060.00 |
A memory that does not lie
DEA-LER: Dividends/Drawings, Expenses, Assets are debit-normal. Liabilities, Equity, Revenue are credit-normal. (AccountingCoach teaches the same idea as DEAL / GIRLS, with losses on the debit side and gains on the credit side — treat those as expenses and other income.) When you are stuck, name the type first, then pick the side.
Check
Choices shuffle each visit. Misses send you back to the section. Look back clears the quiz so you can try again. Practice drills deal a new problem on try-again.
Answer all 2 to check.
1 of 2
To record a new bank loan deposited into checking you:
2 of 2
Revenue has a credit normal balance because:
Practice this
Stay in the flow — open a drill without backing out to the list.