Debit
In accounting and bookkeeping, a debit is an entry that results in either an increase in assets or a decrease in liabilities on a company’s balance sheet. The concept of debits and credits is fundamental to the double-entry system of bookkeeping that is commonly used in accounting.
The term “debit” comes from the Latin word “debere,” which means “to owe.” In the double-entry system, every financial transaction affects at least two accounts: one account is debited, and another is credited.
Here is how debits work in the context of the key categories of accounts:
- Assets: When assets increase, they are debited. When they decrease, they are credited. For example, if a company buys a piece of machinery (an asset), the machinery account would be debited.
- Liabilities: When liabilities increase, they are credited. When they decrease, they are debited. For example, if a company pays off a loan (a liability), the loan account would be debited.
- Expenses: When expenses increase, they are debited. For example, if a company pays rent for the office space, the rent expense account would be debited.
- Equity: When equity decreases, it’s debited. For example, if the company pays dividends to shareholders, the dividends account (a reduction of retained earnings, which is part of equity) would be debited.
- Revenue or income: When income decreases, it’s debited. However, income usually increases, so it’s more common to see credits in this account. Debits in revenue accounts might be seen in cases of sales returns or allowances.
Remember, every transaction will have both a debit and a credit to keep the accounting equation (Assets = Liabilities + Equity) in balance.
Example of a Debit
Let’s go through a few examples:
Example 1 – Purchasing an Asset:
Let’s say a company purchases a new computer for $1,000 cash. The journal entry for this transaction would involve a debit (increase) to the Equipment account (an asset account) and a credit (decrease) to the Cash account (also an asset account).
The journal entry would look like this:
| Account | Debit | Credit |
|---|---|---|
| Equipment | $1,000 | |
| Cash | $1,000 |
Example 2 – Paying Off a Liability:
Suppose the same company pays off $500 of a loan it had taken from a bank. The company would debit (decrease) its Loans Payable account (a liability account) and credit (decrease) its Cash account (an asset account).
The journal entry would look like this:
| Account | Debit | Credit |
|---|---|---|
| Loans Payable | $500 | |
| Cash | $500 |
Example 3 – Incurring an Expense:
If the company pays $200 in cash for office supplies, the company would debit (increase) its Office Supplies Expense account (an expense account, part of equity) and credit (decrease) its Cash account (an asset account).
The journal entry would look like this:
| Account | Debit | Credit |
|---|---|---|
| Office Supplies Expense | $200 | |
| Cash | $200 |
These examples show how debits work in different types of accounts (asset, liability, and expense accounts). In each case, the total debits equal the total credits, keeping the company’s books balanced.
