You’re not alone if you need a debits and credits cheat sheet to keep your accounting processes quick and easy. One of the most common bookkeeping mistakes is recording debits as credits and vice versa. And by the time anyone notices, it is usually three months and forty entries deep.
Having a printable cheat sheet for accounting debits and credits that you can keep at your desk or hand to your employee takes all the guesswork out of the equation. We’ve created one for you to utilize below.
Free download
The one-page debits and credits cheat sheet
All five account types with their normal balances, the DEALER rule, worked journal entries, and the transactions people look up most. Built to print on a single page. No sign up.
In GlassJar, you enter each transaction on a single screen and the software posts both sides of the entry for you. Our accounting software for small business posts the correct debit and credit to the correct accounts for every transaction you categorize, reducing the chance of posting to the wrong side. Learn more today!
Key Takeaways
- Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts.
- Every transaction posts equal debits and credits across at least two accounts, so a trial balance that does not net to zero reveals an error.
- Your bank calls a deposit a credit because it is a liability on their books, while the same deposit is a debit to your cash asset.
- Buying a laptop with cash debits the equipment account and credits the cash account, and taking a bank loan credits loan payable.
- GlassJar posts the correct debit and credit for every transaction you categorize, which removes the manual error risk the cheat sheet guards against.
What Are Debits and Credits?
Debits and credits are the two halves of every accounting entry. A debit is entered on the left side of an account and a credit is entered on the right side of an account. The difficulty for most people is that a debit does not always mean an increase and a credit does not always mean a decrease. Whether the account goes up or down depends on the type of account that is being used.
A debit increases the balance of an asset account and a debit increases the balance of an expense account. A credit decreases the balance of an asset account and a credit decreases the balance of an expense account. The reverse is true of liability accounts, equity accounts and revenue accounts. Those three types of accounts are increased by a credit and decreased by a debit.
The everyday use of the words adds to the confusion. When a bank tells a customer that the customer’s checking account has been debited, the balance of that account has gone down. When a debit is posted to the cash account in a business ledger, the balance of that account goes up. The reason for the difference is that the bank and the business are recording the same transaction from opposite positions. A deposit of $5,000 is recorded by the bank as a credit, because the deposit is a liability that the bank owes to the customer. The same deposit is recorded by the business as a debit, because the $5,000 is an asset that the business now owns.
For this reason, a debit should not be understood as money leaving the business and a credit should not be understood as money arriving. The relationship is rarely that direct.
Understanding the Double-Entry Bookkeeping Method
The system that produces this result is called double-entry bookkeeping, and it has been in use since at least the fifteenth century. Every transaction is recorded as a debit in one account and a credit in another account. When one half of a transaction is omitted, the total of the debits will no longer equal the total of the credits.
The report that identifies this condition is the trial balance. A trial balance lists every account together with the debit or credit total that is held in that account, and the two totals are expected to agree. In practice the two totals frequently do not agree, particularly in a small business.
You still have to untangle the web and try to find the error, but at least you’re made aware of it in real time rather than stumbling upon it during tax season or when you go to sell your business and a potential buyer starts digging into your books.
Accounting Debits and Credits Cheat Sheet
There are five main account types you’ll have to choose from when assigning debits and credits. So, we put together this quick accounting debits and credits cheat sheet you can refer back to:
| Account Type | Debit | Credit | Normal Balance |
|---|---|---|---|
| Assets | Increase | Decrease | Debit |
| Liabilities | Decrease | Increase | Credit |
| Equity | Decrease | Increase | Credit |
| Revenue | Decrease | Increase | Credit |
| Expenses | Increase | Decrease | Debit |
It’s perfectly fine if you still don’t really get it. Keep reading for that “Aha!” moment.
Assets
An asset is anything the business owns, including cash, equipment, inventory and accounts receivable. The balance of an asset account is increased by a debit and decreased by a credit. When a laptop is purchased with cash for a new employee, the equipment account is debited and the cash account is credited.
Liabilities
A liability is an amount the business owes. Loans, accounts payable and credit card balances are all liabilities. The balance of a liability account is increased by a credit and decreased by a debit. When a bank loan is taken out, the loan payable account is credited and the cash account is debited. The entry is reversed as the loan is repaid.
Equity
Equity is the amount that remains for the owner after liabilities have been subtracted from assets. The balance of an equity account is increased by a credit and decreased by a debit. An investment of $10,000 by the owner is credited to the equity account. A withdrawal of $2,000 as an owner draw is debited to it.
Revenue
Revenue is the income that arises from the normal operations of the business. The balance of a revenue account is increased by a credit and decreased by a debit. When a client pays for services or a sale is made, revenue is credited and cash or accounts receivable is debited.
Note: Revenue accounts normally hold credit balances. These accounts are closed out to zero at the end of each accounting period rather than carried forward into the next one.
Expenses
Expenses are the operating costs of the business, such as rent, payroll, supplies and utilities. The balance of an expense account is increased by a debit and decreased by a credit. The rent expense account is debited each month as the cash account is credited. Expense accounts are closed out at the end of the period in the same manner as revenue accounts.
Normal Balances Explained
Each type of account has a side on which its balance is normally held. This side is referred to as the normal balance of the account, and it is the column labeled “Normal Balance” on the printable debits and credits cheat sheet.
Asset accounts and expense accounts normally hold debit balances. Liability accounts, equity accounts and revenue accounts normally hold credit balances. An account that is holding a balance on the side opposite its normal balance should be examined, because in most cases an entry has been posted incorrectly.
A cash account holding a credit balance is one example. Cash is an asset, so a credit balance would indicate that more money had left the account than had ever entered it, which only happens when the account is overdrawn. An entry has been recorded in error.
A revenue account holding a debit balance is a weaker indication. The condition can be legitimate in a period with an unusual volume of refunds. More commonly it means that a credit has been posted to the wrong account.
For this reason the trial balance should be reviewed for accounts sitting on the wrong side before individual transactions are examined. The review takes only a few seconds and it prevents errors from accumulating across multiple periods.
Debits and Credits in Accounting: Cheat Sheet Example
We’re visual learners ourselves, so thought it might be helpful to give you a few common transactions so you can see how debits and credits work in practice.
Purchasing office supplies for $500 cash
Debit: Office Supplies (expense) $500
Credit: Cash (asset) $500
The expense account is increased and the cash account is decreased. Both sides of the entry equal $500.
A client pays a $3,000 invoice
Debit: Cash (asset) $3,000
Credit: Accounts Receivable (asset) $3,000
Cash is increased and the receivable is decreased. The revenue was recorded at the time the invoice was issued.
Making a $1,200 loan payment ($1,000 principal + $200 interest)
Debit: Loan Payable (liability) $1,000
Debit: Interest Expense (expense) $200
Credit: Cash (asset) $1,200
The principal is removed from the liability, the interest is recognized as an expense, and cash is reduced by the full amount of the payment. This entry is recorded incorrectly more often than any other, because the full $1,200 is applied to the loan and the interest expense is understated for the year as a result.
The Key Takeaway
Every entry balances. The accounts involved in the transaction are identified, the type of each account is determined, and the amount is recorded on the side that the rule for that account type requires.
Common Debits and Credits, at a Glance
The majority of entries recorded in a small business are drawn from a small set of repeating transactions. The memory device most bookkeepers are taught is DEALER: Draws, Expenses and Assets are increased by a debit, while Liabilities, Equity and Revenue are increased by a credit. The account is named, the type of the account is determined, and the rule is applied.
| When this happens | Debit | Credit |
|---|---|---|
| You make a sale on credit | Accounts Receivable | Revenue |
| The customer pays that invoice | Cash | Accounts Receivable |
| A bill arrives, unpaid for now | The expense account | Accounts Payable |
| You pay that bill | Accounts Payable | Cash |
| You buy equipment with cash | Equipment (asset) | Cash |
| You take out a loan | Cash | Loan Payable |
| The owner puts money in | Cash | Owner Capital (equity) |
| The owner takes money out | Owner Draws | Cash |
| You record monthly depreciation | Depreciation Expense | Accumulated Depreciation |
How to Check Your Work
When a set of books does not balance, the cause is usually one of a small number of recurring errors. Each of these errors has a signature that can be recognized before individual entries are examined.
| If you see this | It usually means |
|---|---|
| Your trial balance is not zero | One side of an entry is missing, or the amount was keyed differently on each side. |
| An asset account has a credit balance | Often correct for contra accounts such as accumulated depreciation. Otherwise, check the entry. |
| A revenue account has a debit balance | Usually a refund, a returned sale, or a credit posted to the wrong account. |
| The difference divides evenly by nine | A classic sign of transposed digits, for example 540 entered as 450. |
How a General Ledger Helps Small Businesses
Every debit and credit that has been recorded is held in the general ledger, organized by account. Accounts receivable and accounts payable are maintained in sub-ledgers that feed into the general ledger. The income statement, the balance sheet and the cash flow statement are all produced from it.
The general ledger is the system of record for the business. This is the case whether the books are maintained by the owner or by a junior employee, because every entry described on this credits and debits cheat sheet is eventually posted there. A general ledger that is maintained accurately produces financial statements that are accurate.
GlassJar handles the ledger on your behalf. You simply categorize a transaction and the correct debit and credit post to the proper accounts. You don’t have to write a journal entry yourself. This takes the stress out of bookkeeping and helps prevent one of the most common errors.
If you’re looking for a Zoho alternative or Xero alternative, we’re excited to show you what GlassJar can do for your business. Learn more today!
Bottom Line on Debits and Credits
Debits and credits come down to five rules, one for each account type. Print the debits and credits cheat sheet, keep it somewhere you’ll see it while you work, and the patterns will stick faster than you expect.
If you’re tired of the common complaints about QuickBooks or you just don’t want to work out debits and credits yourself anymore, GlassJar can help. Start your 14-day free trial today!
Frequently asked questions
What is the easiest way to remember debits and credits?
Use our printable debits and credits cheat sheet above and you’ll never have to play the guessing game again – OR, better yet, set up a GlassJar account and let our software handle credits/debits on your behalf.
Can you provide a cheat sheet for debits and credits?
Yes. We provided one above on this page that covers all five account types (assets, liabilities, equity, revenue, and expenses). You can see whether a debit or credit increases or decreases the account in each row – and the normal balance it carries.
How do I determine between debits and credits?
Figure out the account type first. Assets and expenses take debits to increase. Liabilities, equity, and revenue take credits to increase. Or, you can just use GlassJar to take the uncertainty out of small business finances!
