Debit

What Is a Debit?

A debit is an entry on the left side of an account in double-entry bookkeeping, the system most companies use to record their financial activity. Every transaction is recorded in at least two accounts, with debits and credits that have equal total value. The word itself only refers to the left side of the ledger and does not mean good or bad.

How Debits Work

Whether a debit increases or decreases an account depends on the account type. Each account has a normal balance, the side that increases it:

• Debits increase asset and expense accounts.
• Debits decrease liability, equity, and revenue accounts.

For example, if a company buys office equipment with cash, it debits the equipment account and credits the cash account. One asset rises while another falls, and the total recorded value stays balanced.

Debits and credits are checked against each other in a trial balance, a summary of account balances. If total debits do not equal total credits, the bookkeeper knows an error has occurred.

Debits on Bank and Brokerage Statements

The meaning of a debit on a personal statement is often reversed from the accounting meaning. On a bank statement, a debit usually means money has left the account, such as a debit card purchase or a withdrawal. The bank records a customer's deposits as amounts it owes that customer, so from the bank's perspective the balance is a liability.

In a brokerage account, a debit balance generally means the account owes money, for example when an investor has borrowed funds through a margin account.

Why Debits Matter to Investors

Individual investors rarely record debits themselves, but the concept appears throughout financial reports. Debits and credits are the mechanism that produces the figures in the balance sheet and the other statements a company publishes. Knowing that an asset increases with a debit and a liability decreases with one helps readers interpret what a line item represents and how it changed over a period.