![]() ![]() When total debits are greater than total credits, the account has a debit balance, and when total credits exceed total debits, the account has a credit balance. Balances of accounts: What is a debit balance and a credit balance?Īn account’s balance is the difference between the total debits and total credits of the account. The total credits for this journal entry add up to $200, and the total debits add up to $200 ($150 + $50), making this a valid journal entry with multiple debits and credits. You will enter a $150 debit under the Bank Loan account, and enter a $50 debit under the Interest Expense account. The multiple entries come into play because in this case, there are not one but two destination accounts: the Bank Loan account and the Interest Expense account. You will first need to make an entry on the right-hand (Credits) side for $200 for the source account, which in this case is the Bank Account. The payment is comprised of a $150 principal and $50 in interest ($200 total). You are paying off a loan from the bank using funds from the Bank Account. This second journal entry is valid because the total debits ($100 debited from the Office Supplies Expense account on the left-hand side) are equal to the total credits ($100 credited to the Bank Account on the right-hand side).Įxample 3: Now let’s look at an example where we are required to record multiple debit and credit entries. ![]() Note: In the T-account above, the transactions making up the first journal entry are labeled “(1)”, and the transactions from the second journal entry are labeled “(2)”. The Office Supplies Expense account is the destination account, which is debited on the right-hand side. This means that the Bank Account is the source account, and so $100 will be recorded as a credit on the right-hand side of the T-account. You can tell that this is a valid journal entry because the total debits ($500 debited from the Bank Account on the left-hand side) are equal to the total credits ($500 credited to the Owner Equity account on the right-hand side).Įxample 2: Carrying on from Example 1 where you put $500 into your Bank Account, now you have purchased office supplies costing a total of $100 using funds from this account. The destination account in this example is the Bank Account, so you will enter $500 on the left-hand (Debits) side to complete the journal entry. Since, as mentioned above, the source account is credited on the right-hand side of the T-account, you will enter the $500 on the right-hand (Credits) side. In this case, the source account is the Owner Equity account. Sometimes, you will need to use multiple debits and credits for a given transaction in order for both sides of the journal entry to be equal.Įxample 1: As a business owner, you decide to invest $500 into your business. ![]() In other words, the total entries on the left-hand side of the T-account must equal the total entries on the right. In order for a journal entry in the account ledger to be valid, the total debits must be equal to the total credits. The destination account, where the money for the transaction is going, is debited on the left-hand side. The source account, the account where the money for the transaction is coming from, is generally credited on the right-hand side. ![]() This is actually where double-entry bookkeeping gets its name: each transaction requires both a debit and a credit entry in the account ledger. For an in-depth explanation of the different types of accounts used in accounting, check out “ What are the Different Account Types in Accounting?” Debits and credits in double-entry bookkeeping: the basicsĪll of your business transactions are tracked as debits and credits (abbreviated as Dr and Cr, respectively) in your account ledger using a T-account, where debits are recorded on the left-hand side of the “T” and credits on the right-hand side. You will need to understand the difference between the two so that you can use them to keep track of your business transactions across the various types of accounts being used within your business. However, in the world of double-entry bookkeeping, the definitions and roles of debit and credit are quite different. This is how debits and credits are represented on your bank account statement. In this sense, debits are viewed as money drawn from our bank account, and credits are viewed as money available to spend or borrow from the bank. We have debit cards and credit cards that allow us to spend money directly from our checking account (debit cards) or from our line of credit with our bank (credit cards). Most people are familiar with debit and credit outside the context of accounting. ![]()
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