Accounting explained
Debit and Credit: Meaning, Format and Example
Debit and credit are simply the left and right sides of an account. Which side increases an account depends on what kind of account it is. Learn five rules and you can read any ledger.
The modern rules
| Account type | Increase | Decrease | Normal balance |
|---|---|---|---|
| Assets (cash, bank, stock, debtors, equipment) | Debit | Credit | Debit |
| Expenses (rent, salary, purchases) | Debit | Credit | Debit |
| Liabilities (creditors, loans, GST payable) | Credit | Debit | Credit |
| Capital (owner's capital) | Credit | Debit | Credit |
| Income (sales, discount received) | Credit | Debit | Credit |
Drawings reduce capital, so they are debited. Accumulated depreciation reduces an asset, so it carries a credit balance.
Worked examples
| Transaction | Debit | Credit |
|---|---|---|
| Cash sale ₹10,000 + 5% GST | Cash ₹10,500 (asset up) | Sales ₹10,000 (income up); CGST and SGST payable ₹250 each (liability up) |
| Pays the electricity bill ₹4,000 by UPI | Electricity ₹4,000 (expense up) | Bank ₹4,000 (asset down) |
| Customer Vidya PG Hostel pays ₹21,000 | Bank ₹21,000 (asset up) | Vidya PG Hostel ₹21,000 (asset down) |
| Takes a ₹1,00,000 loan from a relative | Bank ₹1,00,000 (asset up) | Loan ₹1,00,000 (liability up) |
| Pays ₹25,000 of GST | GST payable ₹25,000 (liability down) | Bank ₹25,000 (asset down) |
Why your bank statement looks backwards
In your books, money in the bank is an asset, so a deposit is a debit. On the bank's statement, the same deposit is shown as a credit, because to the bank your balance is money it owes you, a liability. Neither is wrong; they are the two sides of one relationship. This is also why a bank reconciliation compares your debits with the bank's credits.
A quick check for any entry
- Name the two (or more) accounts affected
- Decide the type of each: asset, liability, capital, income or expense
- Decide whether each goes up or down
- Apply the table, and check that debits equal credits
Common mistakes
- Thinking "credit" means good and "debit" bad; they are just sides
- Reading the bank statement's credits as credits in your own bank account
- Crediting an expense to reduce it instead of passing a proper correcting entry
- Forgetting the GST lines, so the entry does not balance
Reading a ledger account
A ledger account has a debit side on the left and a credit side on the right, or in software a debit column, a credit column and a running balance. In Sri Lakshmi Stores' ledger for Vidya PG Hostel, a ₹21,000 credit sale appears as a debit (the customer owes more), and the customer's payment of ₹21,000 appears as a credit (the customer owes less). The balance after both is nil. In the ledger for Sri Ganesh Agencies, a purchase bill is a credit (the store owes more) and a payment is a debit.
Once you can read one ledger, every other account follows the same pattern: look at the type of account, and the side tells you whether it went up or down.
Key terms on this page
- Normal balance: the side on which an account usually has its balance
- Contra account: an account that offsets another, such as accumulated depreciation against fixed assets
- Drawings: money or goods the owner takes out, reducing capital
About the worked example
The examples on our accounting pages follow one shop through one year: Sri Lakshmi Stores, a kirana in Mysuru owned by Ramesh, for the financial year 2025-26. It sold ₹48 lakh of goods (before GST), made a gross profit of ₹10.4 lakh and a net profit of ₹4.7 lakh, and ended the year with a balance sheet total of ₹7.95 lakh. The figures are illustrative but they add up across every page, so you can follow one transaction from the journal to the balance sheet.
How TripleBill handles it
Every TripleBill report and ledger shows debit and credit columns with a running balance, and every document posts both sides for you. When you need a manual entry, Accounting → Journal checks the two sides agree.
General information on bookkeeping, not accounting or tax advice. For your final accounts and filings, consult a chartered accountant.
Last reviewed
Last reviewed: November 2026.
- Reference: ICAI Foundation course study material on the accounting equation approach
Frequently asked questions
What do debit and credit mean?
The left (debit) and right (credit) sides of an account. Whether a debit increases or decreases an account depends on its type.
Is a debit an increase or a decrease?
An increase for assets and expenses; a decrease for liabilities, capital and income.
Why is sales a credit?
Sales is income, and income increases capital, which has a credit balance, so income is credited.
What is a debit balance?
When an account's debits exceed its credits. Assets and expenses normally have debit balances.
What are Dr and Cr?
Short for debit and credit, from the Latin debere (to owe) and credere (to trust).
Why does my bank say "credited" when I deposit money?
Because in the bank's books your deposit is a liability to you, and liabilities increase with a credit.
Is cash always debited?
Cash is debited when it comes in and credited when it goes out. Its balance is always a debit, because you cannot hold less than nothing.
What is a contra entry in debit and credit terms?
Depositing cash in the bank debits Bank and credits Cash: both are assets, one up and one down.
Is a credit note a credit entry?
A credit note issued to a customer reduces what they owe, so it credits the customer's account and debits sales returns (and the GST payable accounts). The name comes from that credit to the customer.
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