Debits and credits are the two sides of every bookkeeping entry. This guide explains what they really mean and why every entry balances.
Published July 2026 · Updated July 2026
In double entry bookkeeping, every transaction is recorded on two sides: a debit and a credit. They are simply the left and right of an entry, not a judgement about whether something is positive or negative.
A debit increases assets and expenses and decreases income, liabilities and equity. A credit does the opposite. For any transaction, total debits must equal total credits, which is what keeps everything in balance.
Software hides most of this, but understanding it explains why a balance sheet always balances and why an entry can be 'out'. It is the grammar underneath every report.
You buy £300 of software, paid from the bank:
Not quite. A debit increases assets and expenses, so paying money out debits an expense, but receiving an asset also creates a debit. Context matters.
Because the bank is describing its own books, not yours. From the bank's point of view, your deposit is money it owes you, a liability, which increases with a credit.
Not for day to day use of software, but a working sense of them helps you understand and check your accounts.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.