Debit, credit

The accounting terms debit and credit mean “left” and “right,” respectively. Abbreviated dr. (from the Latin debere) and cr. (from the Latin credere), debits and credits are integral parts of financial or double-entry accounting. When a transaction is recorded in the journal, the book of original entry, debit entries precede credit entries, and the dollar amount of the debit entry is placed in the debit (left) column of the journal. Credit entries follow the debit entries, and they are indented. Their dollar amount is placed in the credit (right) column of the journal. In the ledger, the book of final entry, debit entries are recorded on the debit (left) side of the T-ACCOUNT; credit entries are recorded on the credit (right) side of the taccount. Debit and credit by themselves do not signify an increase or a decrease in an account. It is only when debits and credits are associated with particular accounts that they take on the added meanings of increase or decrease. For example, to increase an ASSET account requires a debit to that account, because all asset accounts have normal debit balances. To decrease an asset account requires a credit to that account, because credit entries will offset the normal debit balances found in all asset accounts. The converse holds true for the LIABILITY and owners’ EQUITY accounts. Since they have normal credit balances, credit entries into these accounts will increase them. Debit entries will offset their normal credit balances, thereby reducing the balances in these accounts. All of this is part of the double-entry accounting system developed in 1494 by Fra Luca Pacioli, a Venetian considered to be one of the most learned men of the Renaissance. Double-entry accounting has become the standard for FINANCIAL ACCOUNTING.