2026-02-17-double-entry-bookkeeping-explained.md— layout: post title: “Double-Entry Bookkeeping, Explained” date: 2026-02-17 tags: [accounting, bookkeeping, double-entry, debits-credits] —

Double-entry bookkeeping is a system where every transaction is recorded in at least two accounts—one side is a debit and the other side is a credit—so that the books always stay in balance.

The core idea: the accounting equation

At all times:

Assets = Liabilities + Equity

Double-entry works because each transaction changes the equation in a balanced way.

Debits and credits: what they really mean

A debit and a credit are just the two sides of an entry. They are not “good” or “bad,” and “debit” does not always mean “decrease.”

Instead, think of debits/credits as a direction that depends on the account type:

Account type Debit does… Credit does…
Assets increases decreases
Liabilities decreases increases
Equity decreases increases
Income (Revenue) decreases increases
Expenses increases decreases

A quick memory aid: DEALER

  • Debits increase: Expenses, Assets
  • Liabilities, Equity, Revenue increase with credits

What a transaction looks like

Every transaction must balance:

Total debits = Total credits

That can be two lines, or many lines (a “split” transaction). The key rule is that the debits and credits add up to the same total.

Common examples

1) You buy a $30 item with cash

  • Debit: Expenses (or an Asset, if it’s equipment) +30
  • Credit: Cash (Asset) −30

Why it balances: one asset decreases (cash), an expense increases.

2) You buy $30 of supplies on a credit card

  • Debit: Supplies Expense +30
  • Credit: Credit Card Payable (Liability) +30

Key point: for a liability, a credit increases what you owe.

3) You pay your credit card bill ($100) from checking

  • Debit: Credit Card Payable (Liability) −100
  • Credit: Checking (Asset) −100

You’re reducing what you owe (liability goes down with a debit) and reducing your cash.

4) A customer pays you $500 for services

  • Debit: Checking (Asset) +500
  • Credit: Service Income (Revenue) +500

Revenue increases with credits.

How this maps to “normal language”

A helpful way to interpret most entries:

  • If something you own increases → usually debit an asset
  • If something you owe increases → usually credit a liability
  • If you earned money → usually credit income
  • If you spent money → usually debit an expense

But always validate using the table above and the rule “debits must equal credits.”

What “balance” means

“Balanced” does not mean your bank account matches the statement. It means:

  • Every transaction’s debits equal its credits, and
  • The overall accounting equation remains true.

Bank reconciliation is a separate process: matching your recorded cash transactions to what the bank reports.

Typical beginner mistakes

  • Treating “debit” as “decrease” (it depends on the account type).
  • Mixing up expense vs asset (e.g., tools/equipment may be assets).
  • Recording only one side (single-entry thinking).
  • Posting to the wrong account type (e.g., putting a credit-card purchase as a negative expense instead of increasing the liability).

A quick self-check workflow

  1. Identify the accounts involved (cash, credit card, income, expense, etc.).
  2. Identify each account’s type (asset/liability/equity/income/expense).
  3. Decide which accounts increase vs decrease.
  4. Apply the debit/credit table.
  5. Confirm: sum(debits) = sum(credits).

If you tell me what kind of transaction you’re trying to record (cash, card, loan, owner draw, sales tax, etc.), I can translate it into the exact debit/credit lines you’d enter in your accounting software.