Debits and Credits Without Memorising a Table

Debit and credit describe the two sides of an account. They do not mean “good” and “bad”, and neither one means “cash in” or “cash out” in every account.

Debit is the left side. Credit is the right side. To choose a side, first understand the business event, the account type and whether that account increases or decreases.

Start with the equation

ACC-F 01 followed five events in a fictional design studio through Assets = Liabilities + Equity. This lesson records those same events.

For ordinary accounts, increases in assets and expenses are recorded as debits. Increases in liabilities, equity and revenue are recorded as credits. A decrease uses the opposite side. This is an introductory guide; contra accounts, such as accumulated depreciation, need separate analysis.

The direction matters. Cash and rent expense are both debited when they increase, even though one is a resource and the other reduces profit. A supplier payable increases with a credit, while settling that payable requires a debit.

Use a short reasoning sequence

1. Describe what happened in business terms.
2. Identify the accounts affected and their types.
3. Decide whether each account increases or decreases.
4. Choose the debit or credit side.
5. Check equal totals, then check whether the entry tells the correct story.

Record the studio's five events

All amounts are in IDR million. Start from zero balances. Rent belongs entirely to this teaching period. Equipment qualifies as an asset and becomes available for use only at the end of the teaching slice, so no depreciation is included. Tax and other costs are excluded.

Event 1: The owner contributes 120 in cash.

Debit Cash 120.
Credit Owner capital 120.

Cash is an asset and increases with a debit. Owner capital is equity and increases with a credit. This contribution is not service revenue.

Event 2: The studio pays 6 for rent already consumed in this period.

Debit Rent expense 6.
Credit Cash 6.

The expense increases with a debit. Cash decreases with a credit. The debit does not mean that cash entered the business: this payment is a cash outflow.

Event 3: Equipment costing 24 is received on supplier credit.

Debit Equipment 24.
Credit Accounts payable 24.

The equipment asset increases, and so does the obligation to the supplier. Neither line affects cash at this point.

Event 4: The studio completes a design service and receives 18.

Debit Cash 18.
Credit Service revenue 18.

Assume the agreed service is fully delivered and the whole amount is earned. Cash and revenue increase. The credit to revenue does not mean cash left the business.

Event 5: Another customer pays 30 before any of its work is delivered.

Debit Cash 30.
Credit Customer advance liability 30.

Cash increases, but the studio still owes the agreed future service. The receipt is not earned revenue in this simplified case.

Optional cross-check: movements are not balances

Across these five entries, total debit movements and total credit movements are each 198. These are the sums of the amounts posted, not ending account balances.

After offsetting the cash debit and credit movements, cash has a debit balance 162. The other debit balances are equipment 24 and rent expense 6. Total debit balances are 192.

The credit balances are owner capital 120, accounts payable 24, service revenue 18 and customer advance liability 30. Total credit balances are also 192.

Why is owner capital 120 when the previous lesson showed equity 132? Before closing entries, revenue 18 and expense 6 are still held in separate accounts. The financial-position view includes the resulting profit 12 with owner capital 120, giving equity 132. This lesson does not post closing entries.

Equal totals are one check

An entry can balance while using the wrong accounts, the wrong amount or the wrong period. For example, debiting cash and crediting rent expense for the rent payment would balance but reverse the event's effect. Inspect the underlying document and the business meaning as well as the arithmetic.

Try it yourself

The studio pays 10 of its equipment payable. Which accounts and sides change?

Debit Accounts payable 10; credit Cash 10. Both the obligation and cash decrease. There is no new equipment expense.

Next in the learning path

ACC-F 03, Source Documents: From Receipt to Ledger, follows the evidence behind an entry. Knowing which side to use is useful only when the recorded event is supported.

This is an original fictional learning example, not a complete set of financial statements or entity-specific reporting advice.