Guide · 8 min read
Debits vs Credits, explained like you're 12.
Every accounting textbook opens with the same jargon and loses you by page three. This guide gives you the one rule, one cheat sheet, and six real examples that make debits and credits click for good.
Updated July 13, 2026
TL;DR
A debit is an entry on the left. A credit is an entry on the right. That's it. What they do — increase or decrease — depends on which of the five account types you're touching.
- Assets & Expenses → debits increase, credits decrease.
- Liabilities, Equity & Revenue → credits increase, debits decrease.
- Every transaction has equal debits and credits. Always.
01
The one rule nobody explains
Accounting rests on a single equation: Assets = Liabilities + Equity. Every transaction has to keep both sides equal. To do that, we record two entries — one debit and one credit — that always sum to the same number.
The words "debit" and "credit" don't mean good or bad. They don't mean money in or money out. They just mean left and right in a two-column ledger. Once you accept that, the rest is memorization.
02
The DEALER cheat sheet
Six accounts, one word: DEALER. The first three increase with debits. The last three increase with credits.
| Letter | Account | Increases with |
|---|---|---|
| D | Dividends / Draws | Debit |
| E | Expenses | Debit |
| A | Assets | Debit |
| L | Liabilities | Credit |
| E | Equity | Credit |
| R | Revenue | Credit |
Memorize DEALER once and you'll never look up a journal entry again.
03
Six real examples
1. You buy $200 of fuel with your business debit card
| Account | Debit | Credit |
|---|---|---|
| Fuel expense | $200 | |
| Checking (asset) | $200 |
Expenses go up (debit). Cash goes down (credit).
2. A customer pays you $1,500 in cash
| Account | Debit | Credit |
|---|---|---|
| Checking (asset) | $1,500 | |
| Revenue | $1,500 |
Cash goes up (debit). Revenue goes up (credit).
3. You invoice a customer $3,000 (payment due later)
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable (asset) | $3,000 | |
| Revenue | $3,000 |
A promise to pay is still an asset. Revenue is booked when earned, not when collected.
4. That customer finally pays the invoice
| Account | Debit | Credit |
|---|---|---|
| Checking (asset) | $3,000 | |
| Accounts Receivable (asset) | $3,000 |
You swap one asset for another. Revenue was already recorded in example 3 — never double-count it.
5. You take out a $10,000 business loan
| Account | Debit | Credit |
|---|---|---|
| Checking (asset) | $10,000 | |
| Loan Payable (liability) | $10,000 |
Cash goes up (debit). What you owe goes up (credit). Assets = Liabilities + Equity still balances.
6. You take a $2,000 owner draw
| Account | Debit | Credit |
|---|---|---|
| Owner Draws | $2,000 | |
| Checking (asset) | $2,000 |
Draws reduce equity, and per DEALER, they increase with a debit. Cash goes down (credit).
04
The questions that trip everyone up
Why does my bank statement call a deposit a 'credit' when it's an increase to my cash?
Because your bank is looking at the account from their side of the ledger. To the bank, your deposit is a liability — they owe it back to you — and liabilities increase with credits. From your books, the same deposit is an asset increase, so it's a debit.
If revenue increases with a credit, isn't more revenue bad?
No. Credit ≠ negative. Revenue accounts naturally carry a credit balance, and a larger credit balance means more revenue. The words are directional, not moral.
Do I need to memorize this if I use software?
Not to run the software. But knowing DEALER is what lets you spot a mis-categorized expense, catch a duplicate invoice, or explain a number to your CPA without guessing.
Skip the ledger. Just get the answer.
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