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.

📌 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.

How about trying this new tool for practicing double entry?

I’ve developed a free, interactive Journal Entry Practice Tool that lets you add debit and credit entries and get instant feedback. It’s perfect for reinforcing your accounting skills with hands-on practice. Check it out here: Journal Entry Practice Tool.

📁 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
Opening Balance	$500	Interest Paid	$200
		Closing Balance	$300
	$500		$500

🔁 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):

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

Example: You give $100 to your friend John:

1. Debit John (he receives)
2. 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	Capital $5,000
2	Furniture $1,000	Cash $1,000
3	Inventory $2,000	Accounts Payable $2,000
4	Cash $3,000	Sales Revenue $3,000
5	Accounts Payable $500	Cash $500

T-Accounts (Simplified):

Cash			Capital
Debit	Credit		Debit	Credit
$5,000	$1,000			$5,000
$3,000	$500
Balance $6,500				Balance $5,000
Furniture			Inventory
Debit	Credit		Debit	Credit
$1,000			$2,000
Balance $1,000			Balance $2,000
Accounts Payable			Sales Revenue
Debit	Credit		Debit	Credit
$500	$2,000			$3,000
	Balance $1,500			Balance $3,000

🧠 Summary

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

🧲 Bonus Tip:

Whenever you're confused, just ask yourself:

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

Disclaimer: Some images in this blog are generated using artificial intelligence (AI) for illustrative purposes.