The double entry accounting system is based on the concept that total debits always equal total credits. A debit is an accounting term for an entry made on the left side of an account. Many times debit is abbreviated as Dr.
A debit does not mean an increase or decrease in an account. Many accounting students make this mistake. A debit is always an entry on the left side of an account. Depending on the account, a debit can increase or decrease the account. Accounts that have debit or left balances include assets, expenses, and some equity accounts. This means that a debit recorded in an asset account would increase the asset account.
Conversely, liabilities and revenue accounts have credit or right balances. A debit recorded in a revenue account would decrease the revenue account.
Take this T-account of the cash account for example. Cash is an asset; so all debits would increase the asset account. The credits in the T-account decrease the balance in the cash account. This cash account has a debit for $3,000 and a credit for $1,000. This gives the cash account a debit balance of $2,000. In other words, this company has $2,000 in its checking account right now.
If the company had a credit of $4,000 instead of the credit for $1,000, the company would have a credit balance in its cash account of $1,000. This means the company over drafted its checking account by $1,000.
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