Financial Accounting · General ledger accounts and journal entries

Double-Entry Bookkeeping Rules: Debits and Credits

Updated 11 October 2026 · Fact-checked

Double-entry bookkeeping records every transaction twice: once as a debit in one account and once as a credit in another, for equal amounts. Debit increases assets and expenses. Credit increases liabilities, capital and income. To solve a question, identify the two accounts affected, decide whether each rises or falls, then apply the rules.

Understand Double-Entry Bookkeeping Principles

Every transaction has two effects. If a business buys a machine with cash, it gains a machine and loses cash. If it takes a loan, it gains cash and owes a lender. Double entry records both effects, so the books always stay in balance.

The base is the accounting equation: assets = capital + liabilities. Assets are what the business owns. Liabilities are what it owes to others. Capital is the owner's claim. Income and expenses sit inside capital, because income increases profit and profit increases the owner's claim, while expenses reduce it.

A debit is an entry on the left side of a ledger account. A credit is an entry on the right side. Neither word means good or bad, and neither means increase or decrease on its own. What each does depends on the type of account.

Assets and expenses normally have debit balances, so a debit increases them and a credit decreases them. Liabilities, capital and income normally have credit balances, so a credit increases them and a debit decreases them.

Because every transaction has one debit and one credit of equal value (or several of each that total the same), total debits always equal total credits. This is why a trial balance should agree.

Key formulas to remember

Accounting equation: Assets = Capital + Liabilities; Capital here includes profit for the period less drawings. It must balance after every transaction.
Expanded equation: Assets = Opening capital + Income − Expenses − Drawings + Liabilities; Shows why income and expenses sit on the credit and debit sides in the way they do.
Debit rule: Debit: increase assets, increase expenses, decrease liabilities, decrease capital, decrease income; Debit entries go on the left of the ledger account.
Credit rule: Credit: increase liabilities, increase capital, increase income, decrease assets, decrease expenses; Credit entries go on the right of the ledger account.
Balance rule: Total debits = Total credits; True for every transaction and so for the whole ledger.
Drawings: Drawings: debit drawings, credit cash or bank; Drawings reduce the owner's capital, so they are a debit.

How to solve Double-Entry Bookkeeping Principles questions

Use the same method for any double-entry question, whether it asks for a journal, a ledger entry or a missing account.

1Read the transaction and list the two accounts affected. Name them precisely, such as 'bank' or 'sales', not 'money'.
2Classify each account: asset, liability, capital, income or expense.
3Decide whether each account increases or decreases.
4Apply the rules: debit for an increase in assets or expenses and for a decrease in liabilities, capital or income. Credit for the opposite.
5Check that one account is debited and the other credited for the same amount.
6If the question gives amounts with tax or discount, split the total into its parts and make sure the debits still equal the credits.
7Match your answer to what the question asks: account name, side (debit or credit) and amount.

Quickest way: Ask 'what came in and what went out?'

When to use it: Use this on multiple-choice questions where you must pick the correct debit and credit quickly.

Find the account that gains value or receives something: debit it.
Find the account that gives value or is the source: credit it.
Test with the cash rule: cash received is always a debit to bank or cash, cash paid is always a credit.
Check the answer options against your two accounts and sides. Discard any option with both entries on the same side.
For a no-cash transaction on credit, use the sale or purchase side: credit sales and debit receivables, or debit purchases and credit payables.

Common mistakes in Double-Entry Bookkeeping Principles

Thinking debit means decrease and credit means increase.
Bank statements show credits as money in, so the meaning feels reversed.
Fix: Remember that the meaning depends on the account. For your own ledger, a debit to bank increases bank. Learn the rules by account type.
Debiting income and crediting expenses when the business earns or spends.
Students link 'income' with a debit because cash is debited.
Fix: Cash is the asset and gets the debit. The income account is the other side and gets the credit. Expenses are the reverse.
Putting drawings as a credit or as an expense.
Drawings reduce profit-like items, so they feel like an expense.
Fix: Drawings reduce capital. Debit drawings and credit cash or bank. They never go in profit or loss.
Posting both entries to the same side.
Students rush and forget a transaction must have both a debit and a credit.
Fix: Before you finish, check you have one debit and one credit and the totals match.
Treating a purchase of a non-current asset as an expense.
Money leaves the business, so it looks like a cost.
Fix: If the item will give benefit for more than one period, debit the asset account, not expenses.
Confusing a credit sale with a cash sale.
Students see 'sales' and automatically debit cash.
Fix: Read for the words 'on credit'. A credit sale debits receivables. A cash sale debits cash or bank.

Worked examples

Example 1

A business buys office equipment for $8,000 and pays by bank transfer. Which account is debited and which is credited?

Show the solution

The two accounts are office equipment and bank.
Office equipment is an asset and increases, so it is debited.
Bank is an asset and decreases, so it is credited.
Both entries are $8,000, so debits equal credits.

Answer: Debit office equipment $8,000; credit bank $8,000.

Example 2

A business sells goods on credit to a customer for $2,500. It then receives $1,000 from the customer by cheque. Show the entries for both transactions.

Show the solution

Sale on credit: the two accounts are receivables and sales.
Receivables is an asset that increases, so debit receivables $2,500.
Sales is income that increases, so credit sales $2,500.
Cash received: the two accounts are bank and receivables.
Bank is an asset that increases, so debit bank $1,000.
Receivables is an asset that decreases, so credit receivables $1,000.
Receivables balance is now $2,500 − $1,000 = $1,500 debit.

Answer: Sale: debit receivables $2,500, credit sales $2,500. Receipt: debit bank $1,000, credit receivables $1,000. Closing receivables balance is $1,500 debit.

Exam tips

Write the two account names first, then add Dr or Cr. It stops you reversing the entries.
Watch for multiple-response questions that ask for two correct entries. Select exactly the stated number.
Expect scenario questions where the debit or credit is hidden in wording such as 'owner withdraws cash' or 'expense paid in advance'.
In number-entry questions, check whether the answer needs a sign or a balance side.
If you are unsure, test the entry against the accounting equation: does it keep both sides equal?

Practice questions from General ledger accounts and journal entries

Double-Entry Bookkeeping Principles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateConversion of Single Entry into Double Entry

Double-Entry Bookkeeping Principles: frequently asked questions

What is the difference between debit and credit in accounting?

A debit is an entry on the left of a ledger account and a credit is an entry on the right. A debit increases assets and expenses and decreases liabilities, capital and income. A credit does the reverse.

How do I decide which account to debit and which to credit?

Find the two accounts affected, say whether each is an asset, liability, capital, income or expense, and whether it goes up or down. Then apply the debit and credit rules for that account type.

Why must total debits equal total credits?

Every transaction is recorded with an equal debit and credit. So the sum of all debits must equal the sum of all credits. A trial balance tests this, although it does not find every error.

Is a debit balance always good news?

No. A debit balance on an asset or expense account is normal, but a debit balance on a liability account may show an overpayment. The meaning depends on the type of account.