# Debit: Definition and Relationship to Credit

> **Definition**
>
> A debit in accounting signifies that a company has more of things it owns or owes less to others.

## What Is a Debit?

A debit is half of a double-entry accounting system, in which every debit is offset by a credit. A debit entry results in either more assets or fewer liabilities on a company’s balance sheet.

For instance, if a company takes out a loan to purchase equipment, it would simultaneously debit fixed assets and credit a liabilities account, depending on the nature of the loan.

The abbreviation for debit is sometimes “dr,” which is short for debtor.

### Key Takeaways

*   In a double-entry accounting system, debits are the opposite of credits.
*   A debit is recorded on the left side of the ledger and is offset with a corresponding credit on the right side of the ledger.
*   On a balance sheet, positive values for assets and expenses are debited, and negative balances are credited.
*   The total dollar amount of all debits must equal the total dollar amount of all credits. In other words, the books must balance.

![Debit: An accounting entry that results in either an increase in assets or a decrease in liabilities on a company’s balance sheet.](https://www.investopedia.com/thmb/lrDDJc9sTsscLaI082eiaiqHkm0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/debit-4198113-recirc-blue-1b26a301716d424387f86c5d3f3f9ea0.jpg)

*Assets and expenses have natural debit balances. — Madelyn Goodnight / Investopedia*

## What Is the Difference Between a Debit and a Credit?

In a [double-entry](https://www.investopedia.com/terms/d/double-entry.asp) accounting system, debits are the opposite of credits.

In a [standard journal entry](https://www.investopedia.com/ask/answers/030915/how-do-you-calculate-credits-and-debits-general-ledger.asp), all debits are placed as the top lines, while all credits are listed on the line below debits. When using [T-accounts](https://www.investopedia.com/terms/t/t-account.asp), a debit is on the left side of the chart, while a credit is on the right side.

Debits and credits are used in the trial balance and adjusted trial balance to ensure that all entries balance. The total dollar amount of all debits must equal the total dollar amount of all credits. In other words, finances must balance.

For example, if Barnes & Noble sold $20,000 worth of books, it would debit its cash account $20,000 and credit its books or inventory account $20,000. This double-entry system shows that the company now has $20,000 more in cash and a corresponding $20,000 less in books.

A [dangling debit](https://www.investopedia.com/terms/d/dangling-debit.asp) is a debit balance with no offsetting credit balance that would allow it to be written off. It reflects discrepancies in a company’s [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp). It may indicate that a company has purchased goodwill or services that create a debit.

## Normal Accounting Balances

Certain types of accounts have natural balances in financial accounting systems. Assets and expenses have natural debit balances. This means that positive values for assets and expenses are debited and negative balances are credited.

For example, if a company receives $1,000 in cash, a [journal](https://www.investopedia.com/terms/j/journal.asp) entry would include a debit of $1,000 to the cash account in the balance sheet, because cash is increasing. If another transaction involves a payment of $500 in cash, the journal entry would have a credit to the cash account of $500 because cash is being reduced. In effect, a debit increases an expense account in the income statement, and a credit decreases it.

Liabilities, revenues, and equity accounts have natural credit balances. If a debit is applied to any of these accounts, the account balance decreases.

For example, a debit to the accounts payable account in the balance sheet indicates a reduction in a liability. The offsetting credit is most likely a credit to cash, because the reduction of a liability means that the debt is being paid and cash is an outflow.

For the revenue accounts in the income statement, debit entries decrease the account, while credit entries increase the account.

> **Important**
>
> The concept of debits and offsetting credits are the cornerstone of double-entry accounting.

## Debit Notes

Debit notes are a form of proof that one business has created a legitimate debit entry in the course of [dealing with another business (B2B)](https://www.investopedia.com/terms/b/btob.asp).

This might occur when a purchaser returns materials to a supplier and needs to validate the reimbursed amount. In this case, the purchaser issues a debit note reflecting the accounting transaction.

A business might issue a debit note in response to a received credit note. Mistakes (often related to interest charges or fees) in a sales, purchase, or loan invoice might prompt a company to issue a debit note to correct the error.

A debit note or debit receipt is very similar to an invoice. The main difference is that invoices record a sale, while debit notes and debit receipts reflect adjustments or returns on transactions that have already taken place.

## Margin Debit

When [buying on margin](https://www.investopedia.com/terms/b/buying-on-margin.asp), investors borrow funds from their brokerage and use the money in addition to their own to purchase more shares than they otherwise would be able to purchase. The debit amount recorded by the brokerage in an investor’s account represents the cash cost of the transaction to the investor.

The debit balance in a margin account is the amount of money owed by the customer to the broker (or another lender) for money advanced to purchase securities. The debit balance is the amount of funds that the customer must put into their margin account, following the successful execution of a security purchase order, to settle the transaction.

The debit balance can be contrasted with the credit balance. While a long margin position has a debit balance, a margin account with only short positions will show a credit balance.

The credit balance is the sum of the proceeds from a short sale and the required margin amount under [Regulation T](https://www.investopedia.com/terms/r/regulationt.asp), which is part of a set of Federal Reserve rules for lending by brokerages.

Sometimes, a trader’s margin account has both long and short margin positions. Adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a [special miscellaneous account (SMA)](https://www.investopedia.com/terms/s/specialmemorandumaccount.asp).

## 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](https://www.investopedia.com/terms/c/contra-liability-account.asp).

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](https://www.investopedia.com/terms/a/allowance-for-bad-debt.asp) offsets the asset accounts receivable. Because the allowance is a negative asset, a debit actually decreases the allowance. A contra asset’s debit is the opposite of a normal account’s debit, which increases the asset.

## 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. Double-entry accounting is based on the recording of debits and the credits that offset them.

## What’s the Difference Between a Debit and a Credit?

Debits are the opposite of credits in an accounting system. Assets and expenses have natural debit balances, while liabilities and revenues have natural credit balances.

## Does Debit Always Mean an Increase?

A debit is always an increase in assets. All accounts that normally contain a debit balance will increase in amount when a debit (the left column) is added to them and reduced when a credit (the right column) is added to them.

The types of accounts to which this rule applies are expenses, assets, and dividends.

## The Bottom Line

A debit is an accounting entry that creates a decrease in liabilities or an increase in assets. In double-entry bookkeeping, all debits are made on the left side of the ledger and must be offset with corresponding credits on the right side of the ledger. On a balance sheet, positive values for assets and expenses are debited, and negative balances are credited.

The recording of debits and credits is the basis of double-entry bookkeeping.

> **Article Sources**
>
> 1.  Financial Industry Regulatory Authority. “[Margin Regulation](https://www.finra.org/rules-guidance/key-topics/margin-accounts).”