For double-entry accounting, every transaction on a balance sheet and income statement needs to have at least a debit and a credit. Different types of accounts have a debit or credit balance depending on what type of account they are. Simple, right?

It’s no surprise that even people who have been in business for a while go looking for an accounting cheat sheet to help them understand – a sort of debits and credits cheat sheet to remind them which is what. You could also call it a T accounts cheat sheet since double-entry accounts are sometimes called T accounts because of how they look on the page: The title of the account is at the top with a line under it, then debits are on the left and credits are on the right, separated by a line down the middle. This method of bookkeeping is also called a ledger account.

Your Accounting Cheat Sheet

Here are some important details that can serve as your debits and credits cheat sheet:

• Debits are what you’ve gotten or what you’ve bought. They’re how you’ve used your funds.
• Credits are where you got money or your sources of income.
• Every transaction involves a debit for what you received and a credit for how you paid for it.
• Assets like a desk or computer usually have a debit balance because they’re things you have to buy. Expenses like phone service or copy paper also have a debit balance because they’re things you’ve received.
• Liabilities and equity have a credit balance in most cases because they’re where you got money to purchase things. Sales revenue also has a credit balance because you got cash for some product or service.

Let’s Say It Another Way

If you’re still a bit confused – and we can understand why you would be since this is confusing stuff – let’s try to say the same thing in a different way while adding in a little about colors. Those who have learned color accounting sometimes color code transactions, and it helps to understand how they do that. Here’s a different sort of accounting cheat sheet that you may find easier to understand:

• One type of debit is an asset where what was received increases an account and where it came from decreases an account; color accounting records the transaction in green.
• One type of credit is a liability where what was received decreases an account and where it came from increases an account; color accounting records the transaction in yellow.
• One type of credit is equity where what was received decreases an account and where it came from increases an account; color accounting records the transaction in yellow.
• One type of credit is sale revenue where what was received decreases an account and where it came from increases an account; color accounting records the transaction in yellow with a purple outline.
• One type of debit is an expense where what was received increases an account and where it came from decreases an account; color accounting records the transaction in green with a purple outline.

If you’re still confused, perhaps you’re beginning to understand why the world has bookkeepers with specialized knowledge in double-entry accounting and other ways of keeping track of your business.

For San Diego bookkeeping services to help your business keep accurate records that allow you to always know where you stand financially and how you’re doing, reach out to AD Bookkeeping Services, providers of bookkeeping San Diego businesses can trust for accuracy. For personal service from an honest, experienced professional who doesn’t get confused by things like credits and debits, reach out now to AD Bookkeeping Services for a consultation and quote. You’ll be glad you did.