Welcome to accounting basics! A debit is an entry made on the left side of an account ledger. It's used to record increases in asset, expense, and dividend accounts, while recording decreases in liability, equity, and revenue accounts. Think of it as the left side of your accounting equation.
Understanding debit rules is crucial for proper bookkeeping. Debits increase asset accounts like cash and equipment, expense accounts like rent and salaries, and dividend accounts. However, debits decrease liability accounts such as loans, equity accounts like owner's capital, and revenue accounts including sales income. This follows the fundamental accounting equation where assets equal liabilities plus equity.
Let's break down the debit process into four clear steps. First, identify the account type - is it an asset, liability, equity, revenue, expense, or dividend account? Second, determine the effect - is the transaction increasing or decreasing the account balance? Third, apply the debit rule based on the account type and effect. Finally, record the entry on the left side of the account ledger. Following these steps ensures accurate bookkeeping.
Let's work through a practical example. A company purchases office equipment for one thousand dollars cash. We need to analyze this transaction. Equipment is an asset that increases by one thousand dollars, so we debit the Equipment account. Cash is also an asset that decreases by one thousand dollars, so we credit the Cash account. The journal entry shows Debit Equipment one thousand dollars, Credit Cash one thousand dollars. This maintains the accounting equation balance.
To summarize what we've learned about debits: Debits are entries made on the left side of account ledgers. They increase asset, expense, and dividend accounts while decreasing liability, equity, and revenue accounts. Always follow the four-step process for accurate recording, and remember that every debit must have a corresponding credit entry to maintain balance in your books.