The difference between debit and credit

Forget the everyday meaning

In life, “creditor” means someone owes you and “debtor” means you owe someone. In accounting, debit and credit are not “owed to you” and “owed by you”; they are simply the left and right sides of an entry. Every entry has a debit side and a credit side for equal amounts, and the only question is which accounts go on which side.

The one rule

A way to remember it: what you “own” and “spend” (assets and expenses) sits on the debit side when it rises. What you “owe” and “earn” (liabilities and revenue) sits on the credit side when it rises. Capital is like a liability to the owners, so it is a credit when it rises.

The table you need

• Assets (cash, bank, customers, inventory): increase debit, decrease credit.
• Expenses (salaries, rent, cost of sales): increase debit, decrease credit.
• Liabilities (suppliers, loans, VAT payable): increase credit, decrease debit.
• Equity (capital, retained earnings): increase credit, decrease debit.
• Revenue (sales, services): increase credit, decrease debit.

Three examples that prove the rule

A credit sale invoice

Customers (asset) rose → debit. Sales (revenue) rose → credit. Output VAT (a liability to the authority) rose → credit. Debit Customers 11,500; credit Sales 10,000 and Output VAT 1,500.

Paying a supplier from the bank

Suppliers (liability) fell → debit. Bank (asset) fell → credit. Debit Suppliers 4,600; credit Bank 4,600.

A salary paid in cash

Salary expense (expense) rose → debit. Cash (asset) fell → credit. Debit Salaries 5,000; credit Cash 5,000.

Why is a customer balance a debit and a supplier balance a credit?

Because a customer is an asset (money owed to you), its natural balance is a debit; a supplier is a liability (money you owe), so its natural balance is a credit. When a customer statement shows “debit balance 5,000” it means they owe you 5,000. When a supplier shows “credit balance 3,000” it means you owe them 3,000.

Do you need to memorise this to use accounting software?

Not for daily work. Modern systems generate entries from invoices and receipts automatically on the correct side. But understanding the rule helps you read the trial balance and spot an error, such as a customer with a credit balance (they overpaid, or an invoice was never recorded).