Debits and credits explained

Debits and credits made easy! I guarantee that you will understand the accounting term debits and credits once and for all after watching this video! Debits and credits are part of the #accountingbasics that you MUST understand.

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:12 Debit on the left, credits on the right
0:45 Debit and credit for balance sheet accounts
1:12 Debit and credit for income statement accounts
1:32 Debit and credit journal entry examples
3:16 Debit and credit net income

How do debits and credits work? Does a debit increase an account, and does a credit decrease an account? Or is it the other way around? What are the rules of debit and credit? That really depends on the type of account we are looking at.

For balance sheet accounts, we essentially have three types of account. Assets accounts, where the natural state is for an asset account to have a debit balance. Liability accounts, where the natural state is for a liability account to have a credit balance. Equity accounts, where the natural state is for an equity account to have a credit balance. Assets increase with a debit. Liabilities and equity increase with a credit.

For income statement accounts, we have two types of account. Expense accounts, where the natural state is for an expense account to have a debit balance. Revenue accounts, where the natural state is for a revenue account to have a credit balance. Expenses increase with a debit. Revenues increase with a credit.

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business and #accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers finance training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

[juancpgo]

Well explained, but nobody ever explains the WHY. It has to be a reason why this system works this seemingly unintuitive way. What exactly does "Credit" and "Debit" mean??? Is there anybody in this world who knows?? I don't think the guy who invented this system chose this randomly, IT HAS REASONS. And I need to know them.

[eggminolia]

So in simple words, businesses are always looking forward to increase credits and decrease debits. I have adhd so it’s harder for me to understand things. Thanks so much for this video 😊

[Cambomcleod]

Took me years to finally understand this concept. I always just memorised it but could never really get it. I got an A+ in Advanced Financial Accounting last semester. This video set the foundation for me to get there. The way you set it out is great for visual learners. Thank you so much!

[Hesperr]

Goodness THANK YOU ! the visuals are super simple and effective and your voice helps seeing that my teacher is half asleep trying to muster out a damn letter, that was great for a change. T H A N K YOUUUU!

[winatchapeerapattanapokin]

I so love the analogy of the ship and the clear visualization of the credit and debit tables. Thank you so much.

[martysimpsonmft]

Clear explanation! The visuals were very helpful. Great resource for business owners to recall that accounting class you slept through in college.

[MrMuffleBunnn]

After having trouble for 2 weeks, you finally made it click with me. Thank you very much!

[blazz]

1:06 This little sentence helped me understand the whole thing. Thank you !

[christianmartineau]

Thank you so much for this helpful video man. I read my chapter in my textbook and still had a hard time understanding this before my exam but I watched this short clip and understood right away! Passed my first exam with a 76% thanks to this video. Much appreciated 👍

[clintonreed]

super helpful, have seen a couple different accounting channels try to explain this to me now. By far the most comprehensive one!

[TheFinanceStoryteller]

Why and where are you learning about debits and credits? Let me know by commenting below!

[giorgig]

Thank you so much. I am just learning the basics of accounting at uni and I always thought that Debit always meant increase and Credit always meant dicrease which left me confused all the time. This cleared up so many things for me.

[anantaarora]

Super helpful video. Finally understood the difference between the nature of debits and credits. Thank you!

[ishmael]

Very clear. The illustrations helped a lot. Thank you!

[AfricanMusiq]

Thank you so much for making this video. Really helpful...an engineering guy doing managerial finance for the first time.
Your video has helped me to understand the golden rule.

[nontobekoxulu]

This was the clearest description of credit and debit accounts.

[chrisgray]

I need a refresher on accounting. I think this will do nicely. Thank you.

[qfubdxo]

The reason why is video explained it so clear as it implies the principle of destination and source. Many textbook makes it complicated.
It will be much easier if they explain that if the left side of equation increases so does the right side.
All the examples in this video tried to illustrate this.
If a part of a side of equation increases without an increases on the opposite sied of the accounting equation, there must also be a decrease on a different part on the same side of the equation which that part increases.
For example, a bank deposit receipt will illustrate an entry to debit cash (increased) and credit Accounts Recivable (decreased).
Both cash and account recivable is considered assets account.
So one increased the other must decreased.
This is an awesome video.

[naomiamyot]

Thank you for a very clear explanation which will help my students understand debits and credits.

[CaucasianEU]

thank you for this video!) Brilliantly explained