Account that is debited and account that is credited?

Question

As a non-English-native person, I somehow find it difficult to understand the following: When an account is said to be debited, what does this mean? How does this differ from an account that is credited? Both seem to be checking(withdrawal-possible) account, and I am having difficulty distinguishing these two. How do they differ in some math-quantity understanding in economics?

Answer 1

Hi Morgan.

Debits and credits are enough to confuse the vast majority of students taking an introductory financial accounting course. I realize it can be more difficult when English is not your first language.

The best way to think of debits is that it means "on the left" and credits means "on the right." Don't try to assign some other definition to these two words, and keep them separate from Economics, where they are rarely if ever mentioned.

Then, you just need a set of rules regarding when to debit an account and when to credit an account. I work with students throughout the United States, and have found it helpful for them to know just five words when it comes to debiting and crediting. Just give me a minute to get to that.

An example of debiting and crediting is the purchase of a piece of equipment for $10,000 in cash.

The entry is:

Equipment $10,000

Cash $10,0000

Another example is selling $4,000 of goods on credit. The entry is:

Accts. Receiv. $4,000

Sales Revenue $4,000

If you can agree to the above, then the only 5 words you need to know are these:

AID

LIC

RIC

ExpID

EqIC

In other words, as an Asset Increases it is a Debit; as a Liability Increases it is a Credit; as Revenue Increases it is a Credit; and Expense Increases it is a Debit, and as Equity Increases it is a Credit.

The opposite of these is also true! As an Asset Decreases it is a Credit, and so on.

If you apply the above rule, you will always get the journal entries right--but this takes some practice!

Let me know if I can be of further help,

Christopher