Definition of Debit
In accounting the term debit indicates the left side of a general ledger account or the left side of a T-account. (The right side of an account or a T-account is the credit side.)
Generally asset accounts have debit balances, while liabilities and owner’s (stockholders’) equity accounts have credit balances. This is consistent with the accounting equation where assets = liabilities + owner’s equity.
In addition to the asset, liability, and owner’s equity accounts, the accounting system uses temporary accounts to sort and store the transaction amounts involving revenues and expenses. At any point, the balances in the revenue and expense accounts can be moved to the owner’s equity account.
Since revenues cause owner’s equity to increase, the revenue accounts will have credit balances. Since expenses cause owner’s equity to decrease, expense accounts will have debit balances.
Debits and credits are part of accounting’s double entry system.
Examples of Debits Increasing Assets and Expenses
To illustrate that debits increase asset account balances, assume that Jim starts a new business by depositing $20,000 of his personal savings into the business checking account. The business asset Cash is increased with a debit of $20,000 and the Owner’s Equity account is increased with a credit of $20,000. Next, the business buys office equipment for $4,000. Since the asset account Office Equipment must be increased a debit of $4,000 is recorded. Since the asset Cash must be decreased a credit of $4,000 is recorded.
To illustrate that debits increase the balances in expense accounts, assume that Jim’s business pays $600 to rent office space for the current month. The asset account Cash will be credited $600 since this asset’s account balance must be decreased. Therefore, the second part of the entry will have to be a debit. In this transaction the account Rent Expense will be debited for $600. (Recall that expenses must be debited because the credit balance in Owner’s Equity must be decreased.)
