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Debit Definition: Meaning

and Its Relationship to Credit
By ADAM HAYES Updated July 22, 2022
Table of Contents
Reviewed by THOMAS BROCK
What Is the Difference
Fact checked by YARILET PEREZ
Between a Debit and a
Credit?

Normal Accounting
Balances

Debit Notes

Margin Debit

Contra Accounts

What is a debit?

What’s the difference

between a debit and a
credit?

Does debit always mean an

increase?

The Bottom Line

Investopedia / Madelyn Goodnight

A debit is an accounting entry that results in either an increase in assets or a

decrease in liabilities on a company’s balance sheet. In fundamental
accounting, debits are balanced by credits, which operate in the exact opposite
direction.

For instance, if a firm takes out a loan to purchase equipment, it would

simultaneously debit fixed assets and credit a liabilities account, depending on
the nature of the loan. The abbreviation for debit is sometimes “dr,” which is
short for “debtor.”

KEY TAKEAWAYS
A debit is an accounting entry that creates a decrease in liabilities or
an increase in assets.
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In double-entry bookkeeping, all debits are made on the left side of
the ledger and must be offset with corresponding credits on the right
side of the ledger.
On a balance sheet, positive values for assets and expenses are
debited, and negative balances are credited.

Debit

What Is the Difference Between a Debit and a Credit?

A debit is a feature found in all double-entry accounting systems. Debits are the
opposite of credits. Debits represent money being paid out of a particular
account; credits represent money being paid in.

In a standard journal entry, all debits are placed as the top lines, while all
credits are listed on the line below debits. When using T-accounts, a debit is the
left side of the chart while a credit is the right side. Debits and credits are
utilized in the trial balance and adjusted trial balance to ensure that all entries
balance. The total dollar amount of all debits must equal the total dollar
amount of all credits. In other words, finances must balance.

A dangling debit is a debit balance with no offsetting credit balance that would
allow it to be written off. It occurs in financial accounting and reflects
discrepancies in a company’s balance sheet, as well as when a company
purchases goodwill or services to create a debit.

For example, if Barnes & Noble sold $20,000 worth of books, it would debit its
cash account $20,000 and credit its books or inventory account $20,000. This
double-entry system shows that the company now has $20,000 more in cash
and a corresponding $20,000 less in books.

Normal Accounting Balances

Certain types of accounts have natural balances in financial accounting
systems. Assets and expenses have natural debit balances. This means that
positive values for assets and expenses are debited and negative balances are
credited.

For example, upon the receipt of $1,000 cash, a journal entry would include a
debit of $1,000 to the cash account in the balance sheet, because cash is
increasing. If another transaction involves payment of $500 in cash, the journal
entry would have a credit to the cash account of $500 because cash is being
reduced. In effect, a debit increases an expense account in the income
statement, and a credit decreases it.

Liabilities, revenues, and equity accounts have natural credit balances. If a

debit is applied to any of these accounts, the account balance has decreased.
For example, a debit to the accounts payable account in the balance sheet
indicates a reduction of a liability. The offsetting credit is most likely a credit to
cash because the reduction of a liability means that the debt is being paid and
cash is an outflow. For the revenue accounts in the income statement, debit
entries decrease the account, while a credit points to an increase to the
account.

Important: The concept of debits and offsetting credits are the

cornerstone of double-entry accounting.

Debit Notes
Debit notes are a form of proof that one business has created a legitimate debit
entry in the course of dealing with another business (B2B). This might occur
when a purchaser returns materials to a supplier and needs to validate the
reimbursed amount. In this case, the purchaser issues a debit note reflecting
the accounting transaction.

A business might issue a debit note in response to a received credit note.

Mistakes (often interest charges and fees) in a sales, purchase, or loan invoice
might prompt a firm to issue a debit note to help correct the error.

A debit note or debit receipt is very similar to an invoice. The main difference is
that invoices always show a sale, where debit notes and debit receipts reflect
adjustments or returns on transactions that have already taken place.

Margin Debit
When buying on margin, investors borrow funds from their brokerage and then
combine those funds with their own to purchase a greater number of shares
than they would have been able to purchase with their own funds. The debit
amount recorded by the brokerage in an investor’s account represents the cash
cost of the transaction to the investor.

The debit balance, in a margin account, is the amount of money owed by the
customer to the broker (or another lender) for funds advanced to purchase
securities. The debit balance is the amount of funds that the customer must
put into their margin account, following the successful execution of a security
purchase order, to properly settle the transaction.

The debit balance can be contrasted with the credit balance. While a long
margin position has a debit balance, a margin account with only short
positions will show a credit balance. The credit balance is the sum of the
proceeds from a short sale and the required margin amount under Regulation
T. [1] [2]

Sometimes, a trader’s margin account has both long and short margin
positions. Adjusted debit balance is the amount in a margin account that is
owed to the brokerage firm, minus profits on short sales and balances in a
special miscellaneous account (SMA).

Contra Accounts
Certain accounts are used for valuation purposes and are displayed on the
financial statements opposite the normal balances. These accounts are called
contra accounts. The debit entry to a contra account has the opposite effect as
it would to a normal account.

For example, an allowance for uncollectable accounts offsets the asset

accounts receivable. Because the allowance is a negative asset, a debit actually
decreases the allowance. A contra asset’s debit is the opposite of a normal
account’s debit, which increases the asset.

What is a debit?
A debit is an accounting entry that results in either an increase in assets or a
decrease in liabilities on a company’s balance sheet.

What’s the difference between a debit and a credit?

Debits are the opposite of credits. Debits represent money being paid out of a
particular account. Credits represent money being paid in.

Does debit always mean an increase?

It means an increase in assets. All accounts that normally contain a debit
balance will increase in amount when a debit (left column) is added to them
and reduced when a credit (right column) is added to them. The types of
accounts to which this rule applies are expenses, assets, and dividends.

The Bottom Line

A debit is an accounting entry that creates a decrease in liabilities or an
increase in assets. In double-entry bookkeeping, all debits are made on the left
side of the ledger and must be offset with corresponding credits on the right
side of the ledger. On a balance sheet, positive values for assets and expenses
are debited, and negative balances are credited.

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Debit Definition: Credit Closing Entry What Is an Invoice? It's

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