Debits and Credits Simplified for Accounting Students

Debits and Credits Explained: A Beginner’s Guide with Real-Life Examples for Accounting Students

Introduction: Let’s Clear the Fog on Debits & Credits

If you’re a student new to accounting, chances are you’ve asked yourself:

“Why does the cash account increase on a debit?”

“Why does my brain hurt every time I hear ‘credit the liability’?”

You're not alone.

Debits and credits are foundational building blocks of accounting — and once you understand them, everything else becomes much clearer.

In this guide, we’ll break down the concept of debits and credits in plain English, using real-life examples, case studies, and practical journal entries that actually make sense.

What Are Debits and Credits?

Think of debits and credits as two sides of a scale.

1. Every transaction in accounting affects at least two accounts.
2. When something goes up in one account, something usually goes down in another.
3. Debits (Dr) go on the left side, and Credits (Cr) go on the right side.

But here's the twist — debit doesn't always mean increase, and credit doesn't always mean decrease. It depends on the type of account.

The Golden Rules of Accounting (Simplified)

Account Type	Debit (+)	Credit (–)
Assets	Increase	Decrease
Expenses	Increase	Decrease
Liabilities	Decrease	Increase
Revenues	Decrease	Increase
Equity/Capital	Decrease	Increase

Rule of Thumb:

1. Debit what comes in, credit what goes out (for assets)
2. Debit all expenses, credit all incomes
3. Debit the receiver, credit the giver

Real-Life Case Study 1: Buying Office Supplies with Cash

Scenario:

You buy $200 worth of office supplies using cash.

Affected Accounts:

Office Supplies (Asset/Expense) → Increases → Debit
Cash (Asset) → Decreases → Credit

Journal Entry:

Office Supplies A/C Dr $200
To Cash A/C $200

(Being supplies purchased with cash)

What Happened:

You increased one asset (supplies) and decreased another (cash).

Real-Life Case Study 2: Customer Pays You in Cash

Scenario:

A customer pays $500 for a service you provided.

Affected Accounts:

Rent Expense → Increases → Debit
Bank (Asset) → Decreases → Credit

Journal Entry:

Cash A/C Dr $500
To Service Revenue A/C $500
(Being service income received in cash)

What Happened:

You earned revenue (increase in income) and received cash (increase in asset).

Real-Life Case Study 3: Paying Rent by Bank Transfer

Scenario:

You pay $1,000 for office rent through your bank.

Rent Expense → Increases → Debit

Bank (Asset) → Decreases → Credit
Bank (Asset) → Decreases → Credit

Journal Entry:

Rent Expense A/C Dr $1,000
To Bank A/C $1,000

(Being rent paid through bank)

What Happened:

Your expense increased (debit), and your bank balance went down (credit).

The Accounting Equation and Where Debits/Credits Fit

Assets = Liabilities + Equity

Debits and credits keep this equation in balance.

Example:

You start a business by investing $10,000 of your own money.

1. Cash (Asset) → Increase → Debit
2. Capital (Equity) → Increase → Credit
Cash A/C Dr $10,000
To Capital A/C $10,000

(Being capital introduced into business)

Every time you journal an entry, the left and right sides (debits and credits) will always balance.

Mistakes Accounting Students Often Make (And How to Fix Them)

Mistake #1: Thinking debit always means “increase”

Fix: Learn which types of accounts go up or down with debits.

Mistake #2: Not identifying account types before journaling

Fix: Ask, “Is this an asset, liability, expense, income, or equity?”

Mistake #3: Memorizing entries without logic

Fix: Understand the why behind the entry — what’s coming in, what’s going out?

Pro Tip: Think Like the Business, Not the Owner

Example:

If you pay salary to an employee, from your business’s view, it’s an expense. If you receive money from a customer, from your business’s view, it’s revenue.

Always write journal entries from the business’s perspective.

Summary: Key Takeaways

1. Debits and credits are tools to record changes in accounts.
2. Always affect at least two accounts (dual entry).
3. Use real logic, not just memorization.
4. Think in terms of account types, not just the transaction.

Bonus: Practice Journal Entry Challenge

Can you identify the accounts and write the entry?

Scenario:

Scenario: You borrowed $5,000 from a bank for your business.

Answer:

Bank A/C Dr $5,000
To Loan from Bank A/C $5,000

(Being loan taken from bank)

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