In accounting, ‘debit’ denotes the entry of a sum into a specific financial account during transactional recording. It is one half of the foundational practice of ‘double-entry bookkeeping’ where each transaction’s effect is reflected in two distinct accounts.
As per the double-entry system, transactions are recorded with corresponding debit (as an addition) and credit (as a subtraction) to illustrate where the values have been allocated and their origination, respectively.
Conditions that trigger a debit entry:
- An asset experiences an increase in its value.
- An expense recorded by the company rises.
- The company’s liabilities have diminished.
Debit and credit, simply explained
A common source of confusion arises from associating income with a minus and expenses with a plus. This counterintuitive representation makes more sense when considering that:
- Purchasing an item increases the expense account (hence the + sign), denoting that it increases the company’s expenses.
- Conversely, the company’s bank account is debited to reflect the outflow of funds spent on the purchase (- sign).
The debit and credit values cancel each other out, maintaining equilibrium in the accounts and providing a transparent view of how the funds were expended and the source of these funds. In essence, the bank account is credited, while the company records an increase in expenses due to the purchase.