Accounting Essentials: A Guide to Understanding Debits and Credits with Examples

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Accounting essentials are of great importance for businesses, as these help them plan their budget and guide them to organize daily activities without any hurdles. These are the activities that no business ignores today to run the accounting and finance affairs efficiently. It’s a key factor that allows organizations to make lasting decisions and find rapid growth. 

Without following a proper roadmap and professional guidance, it is merely impossible for entities to make the right decisions. As a result, things get worse and a lot of individuals and businesses face a terrible loss by ignoring the involvement of qualified accountants. They need to get the support of finance managers to drive exceptional results.

What is Accounting Essentials?

Accounting essentials are the basic principles that facilitate accountants to undergo general financial practices. Additionally, these practices include recording and analyzing data to prepare financial statements and reports in compliance with accounting laws and regulations. 

Furthermore, these essentials also cover bookkeeping practices along with taxation services. The basic target of an accounting firm is to enhance the performance of the business by presenting the true picture of financial affairs, so it is the utmost duty of an accountant to deliver the financial insights of a client’s business to improve their decision-making ability and reputation.

Generally speaking, accounting essentials not only end at financial statements and reports, one should also need to understand the concept of debits and credits that are a part of the process. The entire accounting concept revolves around debit and credit, so these are a must to maintain.

Understanding Debits and Credits in Accounting

Debits and credits play the most important role in the field of accountancy and management, especially when we talk about small-sized businesses. The size of the business doesn’t matter, as this concept applies to a wide range of businesses, especially for recording transactions. If we take a look at the bookkeeping method, it covers the double-entry method that affects two accounts, where one is credited and the other is debited in double-entry.

People have misconceptions about debit and credit when it comes to accounting. Many users think that debit is a good side and credit is a bad one, although the terminology is different in finance and has nothing to do with good and bad. You aren’t supposed to do plus and minus things in this system, even these debit and credit are the terms that work with business transactions only. 

Debit vs Credit

There is an extensive difference between debit and credit, as both are opposite entries in the books of account. If you increase the debit in an account, make sure you decrease the credit simultaneously. These are the terms that reflect the two sides of transactions, whereas one represents the incoming cash and the other shows the outgoing cash. 

Surprisingly, many experts consider them two equal sides of a coin (heads and tails) while recording transactions that have different outcomes. 

What is Debit?

Debit is the entry that experts make on the left side of an account. A debit entry increases an asset or expense on one side and decreases the liability or equity on the other side. If you purchase equipment, you enter it on the asset’s side of an account.

What is Credit?

Credit is the entry that experts make on the right side of an account. A credit entry increases the liability or equity on one side and decreases the asset or expense on the other side. It is opposite to the debit, as you credit your expense account after purchasing new equipment. 

Overview of Debit and Credit Accounts

Record keeping is the basic aspect of the debit and credit process. For recording all transactions, every accountant has to go through the debit and credit side of the account. For both transactions, the experts also need to record more than one entry at a time and that is known as double entry bookkeeping. 

Hence, experts often use different accounts for recording transactions in their books. Here are the main accounts that need to be considered for recording activities:


Assets cover both physical and non-physical types of products including cash, equipment, land, goodwill, copyrights, etc.


An expense is the cost used for managing business operations that includes maintenance costs, rent, salaries, washes, and depreciation. Expenses are deducted from revenue to reach the profits. 


Liabilities are the responsibilities that businesses have to pay in the form of amounts. In short, these are the accounts payable that need to be paid by the business.


Equity represents the value of your business that the owner receives after deducting the liabilities. These are the assets you get after you minus all the liabilities from the business. 


Revenue is the income that your business earns. It is an amount that companies earn after selling products and services. 

Debit and Credit Examples

For a better understanding of debit and credit entries, we’ve got you covered with some practical examples. Let’s look at the examples below!

Example #1

You make up your mind to buy office machinery worth $12000. Of course, you’re going to purchase new assets for your business. For recording the entry, you need to debit your fixed asset account with an amount of $12000 to increase the assets. But on the other side, you’ve also increased your liabilities and for this, you need to credit your accounts payable with $12000. In your accounts, your entry will look like this:

xx-xx-xxxFixed AssetsPurchase Machinery$12,000
xx-xx-xxxAccounts Payable$12,000

Example #2

If you purchase cash inventory worth $5000 from a vendor. You’ll record the transaction on both sides by debiting your inventory account and crediting your cash account. In this way, it increases your debit side with the inventory account and decreases your credit side. In your accounts, your entry will look like this:

xx-xx-xxxInventoryPurchase Inventory$5000

Example #3

You complete a sale order of $750 with your customer who pays with credit. It increases your revenue through credit and increases the accounts receivable via debit. In your accounts, your entry will look like this:

xx-xx-xxxAccounts ReceivableCredit Sale to a customer$750

Did You Know?

“In the symphony of financial transactions, debits and credits dance together, harmonizing the melody of accounting essentials with grace and accuracy.”

Connect With The Pro Accountants to Organize Your Debits and Credits

In the business world full of competition, you always look for a reputed company to seek finance consultancy. No doubt, there are so many companies that offer financial services. But, if you wish to enjoy lasting and trustworthy services, look no other than The Pro Accountants. We are a team of certified accountants who have spent years in this accounting industry. Connect with our experts to organize your debit and credit transactions! We are just one click away! 

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