Debit

Debit

Definition

A debit is an accounting entry that, in double-entry bookkeeping, increases assets or expenses or decreases liabilities, equity, and revenue. Debits are recorded on the left side of a ledger and must be offset by corresponding credits on the right side so the books remain balanced. The abbreviation “dr” is sometimes used for debit.

How debits work (double-entry basics)

• Every transaction involves at least one debit and one credit of equal dollar amounts.
• Debits appear on the left of journal entries and T-accounts; credits appear on the right.
• Example — purchase with a loan: debit Fixed Assets (increase asset) and credit Loan Payable (increase liability).
• Example — sale for cash: debit Cash (increase asset) and credit Inventory (decrease asset) or Sales Revenue (increase revenue).
• A dangling debit is a debit balance with no proper offsetting credit, indicating a discrepancy that requires correction.

Normal (natural) account balances

Certain account types have natural balances:
* Debit balances (normal): Assets, Expenses, Dividends. A debit increases these accounts; a credit decreases them.
* Credit balances (normal): Liabilities, Revenues, Equity. A credit increases these accounts; a debit decreases them.
* Example: Receiving $1,000 cash → debit Cash +$1,000. Paying $500 cash → credit Cash −$500.

Debit notes

• Debit notes document adjustments between businesses (B2B), such as returns or corrections.
• They function like invoices for adjustments: invoices record sales; debit notes record increases in amounts owed or corrections to prior invoices.

Margin debit (brokerage accounts)

• In margin trading, a debit balance is the amount the customer owes the broker for funds borrowed to buy securities.
• A long margin position typically shows a debit balance; short-only positions often show a credit balance (proceeds from shorts plus required margin).
• Adjusted debit balance = amount owed to the brokerage − profits on short sales − balances in a Special Miscellaneous Account (SMA).
• Regulation T governs initial margin requirements and affects required balances.

Contra accounts

• Contra accounts hold valuations opposite to their related normal accounts (e.g., Allowance for Doubtful Accounts offsets Accounts Receivable).
• The effect of a debit or credit in a contra account is the reverse of the effect in a normal account (a debit to a contra asset reduces the contra balance).

Common questions

• Does a debit always mean an increase?
• No. A debit increases asset, expense, and dividend accounts, but decreases liability, revenue, and equity accounts.
• Which side is debit?
• Left side of the ledger.
• Why must debits equal credits?
• To maintain the accounting equation (Assets = Liabilities + Equity) and ensure the ledger is balanced.

Bottom line

Debits are one half of double-entry accounting. They appear on the left side of the ledger and, depending on the account type, either increase or decrease balances. Every debit must be matched by an equal credit so the books remain balanced.