Debit
Candlefocus EditorA debit is an accounting entry that indicates a decrease in assets or an increase in liabilities. This type of transaction increases the total balance of the asset account or decreases the total balance of the liability account. The debit is located on the left side of the double-entry accounting system. All debits and credits must be offset with corresponding entries on the other side of the ledger and the total amount for each account must remain the same.
Debits may also take the form of a reduction of assets rather than an increase of liabilities. Examples of these types of transactions include the recording of a reduction in inventory on a company's balance sheet, or reductions in the value of investments, such as stocks and bonds. Record keeping for these types of adjustments is just as important as it is for liability accounts, as the total value of the account must remain in balance.
The effective use of debits, credits and other bookkeeping entries is essential to accurately tracking a business's financial position. Some types of transactions, such as transfers, usually involve the recording of both debit and credit entries on the company's balance sheet. In this case, the transaction is only considered completed once the debit and credit entries are equal in value.
In summary, debits involve the recording of a decrease of assets or an increase of liabilities on a company's balance sheet. When applied properly, the corresponding credit entries also need to be taken into account, as the total value of accounts must stay in balance. As part of the double-entry bookkeeping system, debits ensure accurate tracking of a business's finances and help ensure the company remains in sound financial footing.