Financial Glossary
Debits and Credits
Debits and credits are the two sides of every accounting journal entry under double-entry bookkeeping. A debit increases asset and expense accounts and decreases liability, equity, and revenue accounts. A credit does the opposite. Every transaction must have equal total debits and total credits, keeping the accounting equation -- assets equal liabilities plus equity -- in balance. The terms do not inherently mean increase or decrease; the effect depends on the account type being recorded.
Problem & Application
Business owners who attempt DIY bookkeeping frequently miscategorize transactions by assuming debit always means a positive entry and credit always means negative. This leads to overstated revenue, understated expenses, and balance sheets that do not reconcile. The problem compounds quickly -- a single misclassified entry between an asset account and an expense account can make gross profit look artificially high and inflate tax liability. Clean debit-and-credit discipline from the start prevents restatements and audit headaches later.
In Short
Debits and credits are the foundation every financial report is built on. Errors here propagate through every statement. Accurate entry-level discipline is non-negotiable for trustworthy books.