Double entry: debits left, credits right
Introduced| English | Meaning |
|---|---|
| ledger | The book of T-accounts holding every posted entry. |
| debit | The left side of an account. |
| credit/ˈkredɪt/ | The right side of an account. |
| double entry/ˈdʌbl ˈentri/ | Posting equal debits and credits for every transaction. |
| trial balance | The column totals of every ledger account; equality is a theorem. |
Both columns agree, and the books are still wrong
- At the end of its first week Nimbus lists every account, and both columns add up to £42,000. That looks like proof the books are right.
- Yet if a wage bill had been posted twice, the columns would still agree. This lesson shows how the ledger works, and what its totals can and cannot tell you.
Debit means left, credit means right
- The ledger 账簿 keeps one account for each item, drawn as a T. The left side is the debit 借方 and the right side is the credit 贷方.
- The words mean nothing more than left and right. A debit is not "minus"; whether it makes an account grow depends on which kind of account it is.
Which side makes an account grow
- Assets and expenses grow on the debit side. Liabilities, equity and income grow on the credit side. A decrease goes on the opposite side.
- This follows from the equation: assets sit on the left of $\text{Assets} = \text{Liabilities} + \text{Equity}$, the claims on the right. Every transaction posts equal debits and credits, which is why the method is called double entry 复式记账.
Which side makes it grow?
Sort each Nimbus account by the side that increases it. Assets and expenses grow on the debit; liabilities, equity and income grow on the credit.
Nimbus pays £300 of wages in cash. Which entry is right?
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Wages are an expense, which grows on the debit. Cash is an asset that falls, and a fall goes on the opposite side, the credit.
A debit entry always makes an account smaller.
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Debit only means the left side. A debit makes an asset or expense grow, and makes a liability, equity or income account shrink.
Post Nimbus's first week
- Each line names the debit first, then the credit. The sale needs two entries: one for the money in, one for the flour used.
- Issue shares: Dr Cash 20,000 / Cr Share capital 20,000.
- Bank loan: Dr Cash 15,000 / Cr Loan 15,000.
- Oven for cash: Dr Equipment 6,000 / Cr Cash 6,000.
- Flour on credit: Dr Inventory 4,000 / Cr Payables 4,000.
- Sale: Dr Cash 3,000 / Cr Revenue 3,000, and Dr Cost of sales 1,200 / Cr Inventory 1,200.
Match each transaction to its entry.
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Each entry has one debit and one credit of the same amount. Paying the supplier shrinks a liability (debit) and an asset (credit).
The trial balance adds both columns
- The trial balance 试算平衡表 lists each account's closing balance on its debit or credit side. Because every entry was posted with an equal partner, the two totals must agree.
- Cash is 20,000 + 15,000 + 3,000 − 6,000 = 32,000 on the debit side; inventory is 4,000 − 1,200 = 2,800.
| Account | Debit | Credit |
|---|---|---|
| Cash | 32,000 | |
| Equipment | 6,000 | |
| Inventory | 2,800 | |
| Cost of sales | 1,200 | |
| Loan | 15,000 | |
| Payables | 4,000 | |
| Share capital | 20,000 | |
| Revenue | 3,000 | |
| Total | 42,000 | 42,000 |
Nimbus then pays £300 of wages in cash. What is the new total of the debit column, in £?
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Wages add 300 on the debit side, but cash falls by 300 on the same side: $42\,000 + 300 - 300 = 42\,000$. The credit column does not change either.
Reading a difference
- One side left out: the difference equals the missing amount. Posted on the wrong side (two debits, say): the difference is twice the amount, so halve it and look for that entry.
- Two digits swapped: £3,100 of revenue posted as £1,300 gives a difference of 1,800. A swap always changes a number by a multiple of 9 (1,800 = 9 × 200), so divide by 9 first.
The two columns differ by £1,800. What should you check first?
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Swapping two digits changes a number by a multiple of 9, and $1\,800 = 9 \times 200$. Here £3,100 of revenue was posted as £1,300.
A £250 repair paid in cash is posted as Dr Repairs 250 and Dr Cash 250. By how much do the two columns now differ, in £?
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The debit column gains 250 that should have been a credit, and the credit column misses 250: the gap is $2 \times 250 = 500$. Halving a difference points to the entry on the wrong side.
What the trial balance cannot see
- An entry posted twice, on both sides: £520 of wages posted twice raises both columns by 520. They still agree, but expenses are overstated and profit is understated by £520.
- The wrong account: rent posted to wages still balances. The totals are right; the story is wrong.
- An entry left out completely: nothing was posted on either side, so nothing looks unequal.
- That is why firms also reconcile accounts with outside records, such as bank statements and supplier statements.
Which errors leave the two columns equal? Select all that apply.
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Errors that keep debits and credits in pairs cannot show in the totals. A one-sided posting or a one-sided digit swap makes the columns differ.
Recap
- Debit is the left side, credit is the right side.
- Assets and expenses grow on the debit; liabilities, equity and income grow on the credit.
- Equal totals show the entries were posted in pairs, not that the books are right.