Strategy, Legal & Operations

What are debits and credits?

Learn how debits and credits work in double-entry bookkeeping across the main account types, with worked examples in South African rand.

Published August 27, 20267 min read Share

Debits and credits are the two sides of every transaction in double-entry bookkeeping.

A debit records an entry on the left of an account, while a credit records an entry on the right.

The effect depends on the account type: debits increase assets and expenses, while credits increase liabilities, equity, and revenue.

Key takeaways

• Every transaction affects at least two accounts, and total debits must equal total credits.
• Debits increase assets and expenses, but decrease liabilities, equity, and revenue.
• Credits increase liabilities, equity, and revenue, but decrease assets and expenses.
• The debit and credit rules keep the accounting equation balanced: assets = liabilities + equity.
• South African companies generally report under International Financial Reporting Standards (IFRS) or IFRS for Small and Medium-sized Entities (SMEs). Check which framework applies to your business.

Here’s what we’ll cover:

What are debits and credits?

In accounting, debits and credits record how a transaction changes your accounts. They do not automatically mean money coming in or going out, and they are not inherently positive or negative.

• A debit increases an asset or expense account and decreases a liability, equity, or revenue account.
• A credit increases a liability, equity, or revenue account and decreases an asset or expense account.

Understanding these movements helps you read your financial statements, maintain accurate records, and make informed decisions.

What do debit and credit mean?

A debit (Dr) is an entry on the left side of an account ledger.

It increases assets, such as cash, and expenses, such as rent.

It decreases liabilities, equity, and revenue.

A credit (Cr) is an entry on the right side of an account ledger.

It increases liabilities, equity, and revenue. It decreases assets and expenses.

For every transaction, total debits must equal total credits.

This keeps the accounting equation balanced:

Assets = liabilities + equity

The equation shows that everything a business owns is funded either by borrowing or by the owners’ interest in the business.

How does double-entry bookkeeping work?

Double-entry bookkeeping records every transaction in at least two accounts.

One or more accounts are debited, and one or more accounts are credited.

The total value on each side must match.

Why does double-entry bookkeeping matter?

• It helps identify recording errors because unequal debits and credits do not balance.
• It shows where value came from and where it went.
• It supports audits, financial statement preparation, and reporting under the accounting framework that applies to the business.
• It creates a detailed record that can support analysis of cash flow, expenses, and financial position.

How do debits and credits affect each account type?

Account type	A debit	A credit
Assets	Increases the account	Decreases the account
Liabilities	Decreases the account	Increases the account
Equity	Decreases the account	Increases the account
Revenue	Decreases the account	Increases the account
Expenses	Increases the account	Decreases the account

Assets

Assets are resources your business controls, such as cash or inventory.

A debit increases an asset, while a credit decreases it.

• Example: When a business receives R5,000 in cash from a sale, it debits cash and credits sales revenue.

Liabilities

Liabilities are amounts your business owes, such as loans or accounts payable.

A credit increases a liability, while a debit decreases it.

• Example: When a business buys R10,000 of inventory on credit, it debits inventory and credits accounts payable.

Equity

Equity is the owners’ interest in the assets of a business after liabilities.

A credit increases equity, while a debit decreases it.

• Example: When a business closes R50,000 in profit to retained earnings, it debits income summary and credits retained earnings.

Revenue

Revenue is income earned from business activities, such as sales or services.

A credit increases revenue, while a debit decreases it.

• Example: When a business makes a R2,000 cash sale, it debits cash and credits sales revenue.

Expenses

Expenses are costs incurred in earning revenue, such as rent or salaries.

A debit increases an expense, while a credit decreases it.

• Example: When a business pays R3,000 in rent, it debits rent expense and credits cash.

What are examples of debits and credits?

Example 1: Receiving an allowance and buying a toy

A child receives R10 as a non-repayable allowance.

This increases cash and the child’s net worth.

• Debit: Piggy bank, an asset, R10
• Credit: Allowance income, R10

The child then spends R5 on a toy.

Cash decreases, and the toy becomes a new asset.

• Debit: Toy, an asset, R5
• Credit: Piggy bank, an asset, R5

Example 2: Making a cash sale

A business sells goods for R2,000 in cash.

Cash increases, and the sale increases revenue.

• Debit: Cash, R2,000
• Credit: Sales revenue, R2,000

Example 3: Providing services on credit

A business provides R500 of consulting services and will be paid later.

Accounts receivable increases, and the service increases revenue.

• Debit: Accounts receivable, R500
• Credit: Service revenue, R500

Example 4: Selling an annual software subscription

A software as a service business receives R1,200 upfront for a 12-month subscription.

Because the service is still owed, the amount is first recorded as unearned revenue, a liability.

• Debit: Cash, R1,200
• Credit: Unearned revenue, R1,200

As the business delivers one month of service, it recognises R100 of revenue and reduces the liability.

This follows accrual basis accounting principles.

• Debit: Unearned revenue, R100
• Credit: Service revenue, R100

This continues each month until the full R1,200 has been recognised as revenue.

Are balance sheet accounts debits or credits?

Balance sheet accounts can contain both debit and credit entries.

Their normal balance depends on the account type.

Assets normally carry a debit balance, while liabilities and equity normally carry a credit balance.

• Buying R10,000 of equipment for cash debits equipment and credits cash. Both are asset accounts, so the total value of assets does not change.
• Buying R5,000 of inventory on credit debits inventory and credits accounts payable. Assets and liabilities both increase by R5,000.
• Closing R20,000 of net profit to retained earnings debits income summary and credits retained earnings. 

Balance sheet reconciliation helps ensure these accounts remain accurate over time.

How do debits and credits apply to income statement accounts?

Income statement accounts mainly record revenue and expenses.

Revenue increases with a credit, while expenses increase with a debit.

For example, when a business pays R1,000 cash for warehouse rent, it debits rent expense and credits cash.

The cash asset decreases by R1,000, and the expense reduces equity through profit.

What is a contra account?

A contra account reduces the balance of a related account without directly changing the original account.

Accumulated depreciation is a contra asset account that reduces the book value of an asset over time.

• Debit: Depreciation expense
• Credit: Accumulated depreciation

How can accounting software help manage debits and credits?

Double-entry bookkeeping remains the basis of accurate accounting records.

Accounting software can automate parts of the recording process, reduce repetitive manual work, and help keep records current.

You still need suitable controls and review processes to confirm that transactions are classified correctly.

What are common debit and credit mistakes?

• Treating every debit as money leaving the business or every credit as money arriving.
• Recording only one side of a transaction.
• Using the right amount but the wrong account type.
• Entering the debit and credit on the wrong sides.
• Failing to review the trial balance when totals do not match.

Avoiding these errors is essential, especially for new businesses.

Review common accounting mistakes for start-ups to avoid to strengthen your financial processes.

Build a stronger foundation in debits and credits

Understanding debits and credits helps you keep accurate records, read financial statements, and identify errors.

Start by identifying the account types affected by each transaction, then check that total debits equal total credits.

As transaction volumes grow, accounting software can help automate routine entries and reporting.

Explore Sage Intacct to learn how finance teams can manage accounting processes at scale.

Frequently asked questions about debits and credits

What is the easiest way to remember debits and credits?

Remember that debits increase assets and expenses, while credits increase liabilities, equity, and revenue.

Credits do the opposite effect for assets and expenses, and debits do the opposite effect for liabilities, equity, and revenue.

Do debits always mean money is leaving my business?

No.

A debit describes how an account changes.

For example, when a customer pays you, debiting cash increases your cash asset.

What accounting standards do South African businesses follow?

South African companies generally report under IFRS or IFRS for SMEs.

Confirm with your accountant which framework applies to your business.

What happens if debits and credits do not balance?

An imbalance signals a recording error.

A transaction may be missing an entry, use the wrong amount, or appear on the wrong side.

Review the trial balance and the underlying transactions.

Can an account have both debit and credit entries?

Yes.

Most accounts have entries on both sides over time.

The difference between the two sides determines the ending balance.

Is a credit always good news for a business?

No.

A credit can increase revenue, but it can also increase a liability.

A credit to a loan account means the business owes more.

Editor’s note: This article was originally published in November 2024 and has been updated for relevance.

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