Student handout: Four steps to determine what to debit or credit

Here is a handy list of questions to help guide students through the thought process involved with determining what to debit or credit in a given transaction.  (I also have this list in pdf format for handout purposes.)

Step 1:  Pick ONE account that is affected by this transaction

Step 2:  Is this account you picked in Step 1 INCREASING or DECREASING?

Step 3:  What type of account is this?

CHOICES

  • Assets – something that has future economic benefit – Cash, Accounts Receivable, Inventory, Prepaid Insurance, Equipment, etc.
  • Liabilities – a debt owed to others – Accounts Payable, Unearned Revenue, Notes Payable, Bonds Payable, Long-term Mortgage Payable
  • Equity – Common Stock, Retained Earnings
  • Revenues – Sales Revenue, Service Revenue, Sales
  • Expenses – Cost of Goods Sold, Salaries Expense, Insurance Expense
  • Dividends – these are dividends that the company has declared and has, or will, pay to its stockholders

Step 4:  Combine your answer from Step 2 and Step 3 to find whether you DEBIT or CREDIT the account you identified in Step 1

Type of account How to INCREASE How to DECREASE
Assets Debit Credit
Liabilities Credit Debit
Equity Credit Debit
Revenues Credit Debit
Expenses Debit Credit
Dividends Debit Credit

Repeat Steps 1 through 4 for the OTHER account in this transaction

Remember:

  • Total debits in a journal entry (transaction) must equal the total credits in that transaction
  • You need at least one debit and one credit for every journal entry
  • Debits are on the left, credits are on the right

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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