Debits and Credits Finally Explained: Memory Tricks, a Cheat Sheet and 10 Practice Examples
Debits and credits are where most accounting students first get stuck — and where many quietly stay stuck for the rest of the course. You can memorise that assets are increased by debits, then freeze the moment a homework problem changes the wording. The issue is rarely intelligence. It is that most students learn the rules as a list to memorise rather than a system that makes sense. This guide gives you a memory trick that works, a cheat sheet you can keep beside you, and ten worked examples that cover the transactions you will see most often.
What Debit and Credit Actually Mean
Forget "good" and "bad." Forget your bank statement, where a credit means money came in — the bank is describing its own books, not yours. In accounting, debit simply means left side and credit means right side of an account. Every transaction has equal debits and credits, which is what keeps the accounting equation in balance: Assets = Liabilities + Equity. For the bigger picture, read double-entry bookkeeping explained.
The DEALER Memory Trick
DEALER sorts every account into two groups by its normal balance:
LER → Liabilities, Equity (owner's capital/stock), Revenue → increase with a CREDIT
That is the whole rule. To decrease any account, do the opposite of what increases it. So cash (an asset) goes up with a debit and down with a credit; accounts payable (a liability) goes up with a credit and down with a debit.
Why do expenses and dividends sit with assets? Because both reduce equity. Equity increases with credits, so anything that reduces it is recorded as a debit. Once you see that logic, DEALER stops being a random acronym.
The One-Page Cheat Sheet
| Account Type | Increase | Decrease | Normal Balance | Examples |
|---|---|---|---|---|
| Assets | Debit | Credit | Debit | Cash, AR, Inventory, Equipment |
| Expenses | Debit | Credit | Debit | Rent, Wages, Utilities, COGS |
| Dividends / Drawings | Debit | Credit | Debit | Dividends declared, owner withdrawals |
| Liabilities | Credit | Debit | Credit | AP, Notes Payable, Unearned Revenue |
| Equity | Credit | Debit | Credit | Common Stock, Retained Earnings |
| Revenue | Credit | Debit | Credit | Sales, Service Revenue, Interest Income |
| Contra-assets | Credit | Debit | Credit | Accumulated Depreciation, Allowance for Doubtful Accounts |
A 3-Question Method for Any Transaction
- Which accounts are affected? Usually there are two. Cash is involved more often than not — start there.
- Is each account going up or down? Think about the business, not the debit/credit yet.
- Apply DEALER. Increase in a DEA account = debit; increase in a LER account = credit. Then check debits equal credits.
10 Worked Examples
| # | Transaction | Debit | Credit |
|---|---|---|---|
| 1 | Owner invests $20,000 cash | Cash 20,000 | Common Stock 20,000 |
| 2 | Buy equipment for $8,000 cash | Equipment 8,000 | Cash 8,000 |
| 3 | Buy supplies on account, $600 | Supplies 600 | Accounts Payable 600 |
| 4 | Provide services for cash, $3,000 | Cash 3,000 | Service Revenue 3,000 |
| 5 | Provide services on account, $2,500 | Accounts Receivable 2,500 | Service Revenue 2,500 |
| 6 | Pay rent for the month, $1,200 | Rent Expense 1,200 | Cash 1,200 |
| 7 | Pay the supplier from #3 | Accounts Payable 600 | Cash 600 |
| 8 | Collect from the customer in #5 | Cash 2,500 | Accounts Receivable 2,500 |
| 9 | Receive $4,800 for 12 months of future service | Cash 4,800 | Unearned Revenue 4,800 |
| 10 | Declare and pay $1,000 dividend | Dividends 1,000 | Cash 1,000 |
Notice examples 7 and 8: no revenue or expense is recorded, because the revenue and expense were already recorded earlier. Paying a bill or collecting a receivable only swaps one balance sheet account for another. That distinction is the heart of accrual accounting — see accrual vs cash accounting.
Example 9 trips up almost everyone the first time. The company received cash, but it has not done the work yet, so it owes the customer service. That obligation is a liability (unearned revenue), not revenue. It becomes revenue month by month through adjusting entries.
Seeing It in T-Accounts
Post examples 1 to 8 into T-accounts and look at the Cash account. Debits on the left: 20,000 (investment), 3,000 (cash services) and 2,500 (collection) = 25,500. Credits on the right: 8,000 (equipment), 1,200 (rent) and 600 (supplier) = 9,800. Ending cash balance: 25,500 − 9,800 = $15,700 debit. A debit balance is exactly what DEALER predicts for an asset. If you ever compute a credit balance in Cash, you have either overdrawn the account or reversed an entry — a useful built-in error check.
Do the same for Accounts Receivable: a 2,500 debit from example 5, then a 2,500 credit from example 8, leaving zero. The customer owed you, then paid you. T-accounts make that story visible, which is why instructors keep asking you to draw them even after you think you understand the rules.
The Mistakes Everyone Makes
- Thinking "credit" means money in. Cash coming in is a debit to Cash on your books.
- Recording revenue when cash arrives instead of when it is earned. Example 9 shows why that is wrong.
- Treating dividends as an expense. Dividends are a distribution of profit, not a cost of earning it. They never appear on the income statement.
- Forgetting contra accounts. Accumulated depreciation has a credit balance even though it sits in the asset section.
Still Freezing on Journal Entries?
If debits and credits still feel random after a few weeks, a single one-on-one session can fix the underlying mental model. Accounting Tutor Online works with introductory students on exactly this — using your own homework problems.
Get help from a tutor →How to Make It Automatic
Recognising a correct journal entry is not the same as producing one. The only way to get fast is repetition with feedback: record an entry yourself, check it immediately, and understand any mistake before moving on. Twenty minutes a day of journal entry practice and trial balance questions will do more than hours of rereading the chapter. Once entries feel natural, move on to the trial balance and the full accounting cycle.
Test Yourself: Debits and Credits
Pick an answer to see the explanation. 4 questions.
Q1. A customer pays $4,800 in advance for 12 months of service. What is the entry when the cash is received?
Q2. What is the normal balance of Accumulated Depreciation?
Q3. The company pays a supplier $600 it owed for supplies bought last month. The entry is:
Q4. Using DEALER, which group of accounts is increased by a DEBIT?
Practise Journal Entries Until They Are Automatic
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