Double Entry System Made Simple: Understand Debits, Credits, and the Accounting Equation

Everything You Need to Know About Double Entry Accounting—No Jargon, Just Clarity.

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📌 What is Double Entry Accounting?

Double entry accounting is like balancing a see-saw. Every time something happens in your business (called a transaction), you write it in two places: one side gives something, and the other side receives it.

In short: Every transaction has TWO SIDES — a DEBIT and a CREDIT.

💡 How Does It Work with the Accounting Equation?

The magical formula every accountant lives by is:

Assets = Liabilities + Capital (Owner's Equity)

Think of it as:

What you OWN = What you OWE + What you KEEP

This equation must always stay in balance. Every transaction changes at least two of these parts—just like a see-saw staying level.

📁 Why Record in Individual Accounts?

Imagine throwing all your socks, books, and snacks in one pile. That’s chaos!

That’s why we use separate accounts: Cash, Rent, Inventory, Furniture, etc. Each transaction is recorded in its own account so you can track everything properly.

🧾 What is a T-Account?

A T-account helps you visually organize your debits and credits. It looks like a big capital letter “T”:

Cash

Debit	Credit
$500
	$200

🔁 What Do Debit and Credit Mean?

Let’s break it down with a cheat sheet:

Account Type	Debit Means	Credit Means
Assets	Increase	Decrease
Liabilities	Decrease	Increase
Capital	Decrease	Increase

🧠 What Does “Debit the Receiver, Credit the Giver” Mean?

This rule applies to personal accounts (people or businesses):

• If someone receives something from you, you debit their account.
• If someone gives you something, you credit their account.

Example: You give $100 to your friend John:

• Debit John (he receives)
• Credit Cash (you give)

📊 How to Record Increases & Decreases

Account Type	Increase (↑)	Decrease (↓)
Assets	Debit	Credit
Liabilities	Credit	Debit
Capital	Credit	Debit

🧮 Entering Transactions into T-Accounts

Let’s record 5 simple transactions into T-accounts.

Transactions:

1. Owner invests $5,000 cash
2. Buys furniture for $1,000
3. Buys inventory worth $2,000 on credit
4. Sells goods for $3,000 cash
5. Pays $500 to supplier

Journal Entries:

#	Debit	Credit
1	Cash $5,000  Dr	Capital $5,000  Cr
2	Furniture $1,000  Dr	Cash $1,000  Cr
3	Inventory $2,000  Dr	Accounts Payable $2,000  Cr
4	Cash $3,000  Dr	Sales Revenue $3,000  Cr
5	Accounts Payable $500  Dr	Cash $500  Cr

T-Accounts (Simplified):

Cash

Debit	Credit
$5,000	$1,000
$3,000	$500
Balance = $6,500

Capital

Debit	Credit
	$5,000

Furniture

Debit	Credit
$1,000

Inventory

Debit	Credit
$2,000

Accounts Payable

Debit	Credit
$500	$2,000
Balance = $1,500

Sales Revenue

Debit	Credit
	$3,000

🧠 Summary

• Every action has two sides: one gets, one gives
• Debits and credits must always balance
• Use T-accounts to visualize your accounts
• Track everything separately — like folders in your brain
• Use this mantra: “Debit the receiver, Credit the giver.”

🧲 Bonus Tip:

Whenever you're confused, just ask yourself:

• “What did I receive?” → Debit.
• “What did I give?” → Credit.