Why does my bank say they are 'crediting' my account when I deposit money?

Your bank views you as a creditor. When you deposit money, the bank's liability to you increases. Liabilities are increased by credits. So, they are crediting their 'Customer Deposits' account, not your personal asset account.

What happens if my total debits do not equal my total credits?

If debits and credits do not match in a journal entry, the accounting equation ($Assets = Liabilities + Equity$) will become unbalanced. This indicates an error was made, and accounting software will usually prevent you from saving the entry until the amounts match.

Are debits always recorded before credits?

Yes, by standard accounting convention, debits are always listed first in a journal entry, and credits are listed second. The credit account names are also typically indented slightly to the right to make the entry easy to read.

What is the difference between a debit and a credit?

In accounting, the difference between a debit and a credit comes down to direction. A debit (often abbreviated as Dr.) is an entry recorded on the left side of an account, while a credit (Cr.) is recorded on the right side. They do not inherently mean "good" or "bad," nor do they always mean "increase" or "decrease." They are simply the left and right sides of the accounting scale.

Every financial transaction affects at least two accounts, keeping the foundational accounting equation balanced. This system is called double-entry bookkeeping. Whenever you debit one account, you must credit another account for the exact same amount, ensuring the total debits always equal the total credits.

The Everyday Analogy vs. Accounting Reality

If you have a bank account, you might think a debit means "losing money" and a credit means "gaining money." That is because from the bank's perspective, your money is a liability (they owe it to you). When they credit your account, they are increasing their liability. In your own corporate accounting, however, the rules are different. Think of debits and credits like the steering wheel of a car. Turning left (debit) makes you go left, and turning right (credit) makes you go right. Neither is "better" than the other; it just depends on where you want the car to go.

The Accounting Equation

To know whether a debit or credit increases a specific account, you have to look at the accounting equation: $Assets = Liabilities + Equity$ . The left side of the equation represents what a business owns (Assets). Because assets are on the left, they are increased by left-side entries (debits). The right side of the equation represents who owns those assets (Liabilities and Equity). Because they are on the right, they are increased by right-side entries (credits).

The Rules to Remember

A helpful way to remember this is the acronym DEALER. Dividends, Expenses, and Assets (DEA) are increased by Debits and decreased by Credits. Liabilities, Equity, and Revenue (LER) are increased by Credits and decreased by Debits. Where students often slip up is trying to memorize transactions instead of this foundational rule. If you memorize DEALER, you can figure out any journal entry.

Worked through

A company purchases $5,000 worth of new computer equipment and pays for it with cash. How is this recorded using debits and credits?

First, identify the two accounts involved: Equipment and Cash. Both of these are Asset accounts (they are things the company owns). Second, determine if they are increasing or decreasing. The company is gaining equipment, so the Equipment account increases. The company is spending cash, so the Cash account decreases. Because assets are increased by debits, we debit Equipment for $5,000. Because assets are decreased by credits, we credit Cash for$ 5,000. The entry balances perfectly.

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Where this comes from: OpenStax Principles of Accounting, Volume 1: Financial Accounting · Khan Academy: Financial Accounting - Debits and Credits · AccountingCoach: Debits and Credits