Are Debits Bad and Credits Good?

In accounting, credits and debits are fundamental tools used to record transactions in the double-entry bookkeeping system.

Where Your Assets and Liabilities Come From

Every once in a while, I look at family photos and I chuckle. I see my kids with their quirky traits—maybe they have my sense of humor or my Mom's nose. Now, think about where those traits came from. It’s clear that what my kids have didn't just appear out of nowhere; what they have (debit on the left) is a blend of what was passed down from their parents (credit on the right)!

The same idea applies to accounting. Just as your kids inherit traits from family members, every asset in your accounts comes from somewhere specific. Debits and credits aren’t inherently good or bad; they are simply ways of tracking how values are transferred between accounts.

Here’s a straightforward explanation:

- Debits (Dr):

- Increase asset or expense accounts

- Decrease liability, equity, or revenue accounts

- Credits (Cr):

- Increase liability, equity, or revenue accounts

- Decrease asset or expense accounts

Simple Scenario with Numbers

- Debit Example:

The company buys office supplies for $200.

- The office supplies (asset) account is debited $200 (increase in assets).

- The cash (asset) account is credited $200 (decrease in cash).

- Credit Example:

The company takes a loan of $1,000.

- The cash (asset) account is debited $1,000 (increase in cash).

- The loans payable (liability) account is credited $1,000 (increase in liabilities).

This system ensures that every transaction impacts at least two accounts, keeping the accounting equation (Assets = Liabilities + Equity) in balance.

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