A debit entry is an accounting entry that increases the balance of certain accounts and decreases the balance of others.
Debit Entries in Double-Entry Bookkeeping
In a double-entry bookkeeping system, all transactions are recorded into an accounting journal. All transactions are posted to individual accounts. The accounting entries are made in accordance with the double-entry method of accounting, in which every accounting entry is posted to two or more accounts.
The terms debit and credit simply mean “left” and “right,” respectively. These terms are in reference to the columns in an accounting journal. Thus, debit entries are made on the left side and credit entries are made on the right side.
Rules of Debits and Credits
Debit entries are made in accordance with preset rules of debits and credits. These rules state that debit entries increase certain accounts and decrease others. Likewise, credit entries increase certain accounts and decrease others.
The five account types used in an accounting system are:
According to the rules of debits and credits, debit entries increase asset and expense accounts and decrease liability, equity, and income accounts.
New to investing? Start with our guide to fundamental investing.
Examples of a Debit Entry
For example, suppose a company purchases a piece of machinery. Because machinery is an asset, the entry for the purchase requires a debit entry made to an asset account. This entry thus increases the balance in the asset account.
Conversely, suppose a company makes a payment on an outstanding loan. The loan is a liability and is reduced by a debit entry.
Why Debit Entries Matter
Debit entries are fundamental to maintaining balance in a double-entry accounting system. Every debit must be matched by a corresponding credit entry.
Properly applying debit rules ensures:
- Accurate financial records
- Balanced trial balances
- Reliable financial statements
Understanding debit entries is essential for interpreting financial statements and evaluating business performance.
