So in our quest to better understand what a debit and a credit is, we talked about the accounting formula: Assets = liabilities + Stockholders' Equity. This formula must always balance. In other words, you cannot have more assets that you do liabilities and stockholders' equity combined; they must equal.
The easiest way to remember what a debit is or does is to remember that when you debit an account on the left side of the equation ( i.e. your cash account or you debit accounts receivable or some other asset), the value of that account goes up. When you debit something on the right side of the formula, the value (no necessarily the account balance) will go down.
When you credit something on the left side of the formula, the value of the assets goes down. When you credit something on the right side of the equation, the value goes up. So, credits work in the opposite way that a debit does.
Now I am sure that all of you who know a little about accounting are saying wait a minute, all of my expense accounts are on the right hand side of the equation under the Stockholder's equity title and when I debit them, the expense account gets bigger - that goes against everything you just said. If you're thinking that, then you’re partially on the right track. You're right that the expense accounts are on the right side of the equation under Stockholders' equity and you’re right that when you debit them the expense gets bigger, but remember what I said about how debiting anything on the right side of the equation will make the overall “value” of the right side go down (not necessarily the account balance). When an expense goes up, that means that you are spending money and therefore the value of your equity in the company is going down.
One more final rule is that whenever you make an entry, the debits must always equal the credits. If you are using QuickBooks, you may never even see the words debit and credit. That’s because QuickBooks is set up for the non-accountant and it does all of that fun stuff for you behind the scene. Just know that it’s easy to get something wrong in QuickBooks and if you don’t know how to fix the behind the scenes debit and credit stuff, it’s a good to consult with your accountant. If you don’t a small error will likely grow bigger and bigger.
I hope that this helps! If you have specific questions, respond to the post and we will work them out together. Good luck and happy counting.
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