In order for a journal entry in the account ledger to be valid, the total debits must be equal to the total credits. The destination account, where the money for the transaction is going, is debited on the left-hand side. The source account, the account where the money for the transaction is coming from, is generally credited on the right-hand side. This is actually where double-entry bookkeeping gets its name: each transaction requires both a debit and a credit entry in the account ledger. For an in-depth explanation of the different types of accounts used in accounting, check out “ What are the Different Account Types in Accounting?” Debits and credits in double-entry bookkeeping: the basicsĪll of your business transactions are tracked as debits and credits (abbreviated as Dr and Cr, respectively) in your account ledger using a T-account, where debits are recorded on the left-hand side of the “T” and credits on the right-hand side. You will need to understand the difference between the two so that you can use them to keep track of your business transactions across the various types of accounts being used within your business. However, in the world of double-entry bookkeeping, the definitions and roles of debit and credit are quite different. This is how debits and credits are represented on your bank account statement. In this sense, debits are viewed as money drawn from our bank account, and credits are viewed as money available to spend or borrow from the bank. We have debit cards and credit cards that allow us to spend money directly from our checking account (debit cards) or from our line of credit with our bank (credit cards). Most people are familiar with debit and credit outside the context of accounting.
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