Debit

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What is a 'Debit'

A debit is an accounting entry that results in either an increase in assets or a decrease in liabilities on a company's balance sheet. In fundamental accounting, debits are balanced by credits, which operate in the exact opposite direction. For instance, if a firm were to take a loan to purchase equipment, one would debit fixed assets and credit a liabilities account, depending on the nature of the loan.

BREAKING DOWN 'Debit'

A debit is a feature found it all double-entry accounting systems. In a standard journal entry, all debits are placed as the top lines, while all credits are listed the line below debits. When using T-charts, a debit is the left side of the chart while a credit is the right side. Debits and credits are utilized in the trial balance and adjusted trial balance to ensure all entries balance. The total dollar amount of all debits must equal the total dollar amount of all credits. The abbreviation for a debit is "dr."

Normal Accounting Balances

Certain types of accounts have natural balances in financial accounting systems. Assets and expenses have natural debit balances. This means positive values for assets and expenses are debited and negative balances are credited. For example, upon the receipt of $1,000 cash, the journal entry would include a debit of $1,000 to the cash account, because cash is increasing. If another transaction involves payment of $500 in cash, the journal entry would have a credit to the cash account of $500 because cash is being reduced.

Liabilities, revenues and equity accounts have natural credit balances. If a debit is applied to any of these accounts, the account balance has decreased. For example, a debit to the accounts payable account indicates a reduction of a liability. The offsetting credit is most likely a credit to cash, because the reduction of a liability means the debt is being paid and cash is an outflow.

Contra Accounts

Certain accounts are used for valuation purposes and are displayed on the financial statements opposite the normal balances. These accounts are called contra accounts. The debit entry to a contra account has the opposite effect as it would to a normal account. For example, an allowance for uncollectable accounts offsets the asset accounts receivable. Because the allowance is a negative asset, a debit actually decreases the allowance. A contra asset's debit is opposite of a normal account's debit, which increases the asset.

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