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Every first-year accounting student wishes that he could use words like increase and decrease when talking about movements in account values.
If you heard our quantity of cash increased, you would know that the company had more cash.
Unfortunately, accountants use the words debit and credit instead.
Here's where it starts to get complicated. Sometimes debit means increase, and sometimes debit means decrease. Same thing with credit.
The meanings of the words change depending upon what type of account you're dealing with.
For instance a debit of an asset means it increased, but a debit of a liability means it decreased.
Understanding what debits and credits mean for a given account is absolutely critical for reading financial statements.
Fortunately, there's a trick to it. If you memorize the table below, you're going to have a huge advantage when learning accounting.
| + DEBIT | CREDIT + |
|---|
| Draw | Liability |
| Expense | Equity |
| Asset | Revenue |
So, if you read the first letter of each account name, first on the left column, then the right column. You'll see it spells out the word DEALER.
For accounts on the left (draw, expense, asset), a debit means an increase and a credit means a decrease.
For accounts on the right (liability, equity, revenue), a debit means a decrease and a credit means an increase.
If you're new to accounting, you might think that it is completely bizarre that we do this, but you'll see why in a future lesson.