We went through a lot of accounts in Assets, Liabilities, & Equity. Each of those accounts have what's called a normal balance.
The normal balance of an account dictates whether a debit or credit makes the account increase or decrease.
So... how does the normal balance dictate whether a debit / credit makes the account increase / decrease?
If an account has a normal debit balance, then a debit will make it increase & a credit will make it decrease.
If an account has a normal credit balance, then a debit will make it decrease & a credit will make it increase.
So... how can you tell whether a given account has a debit or credit normal balance?
Lucky for us, it's decently simple, and can be broken down with the following table!
Account Type | Normal Balance | Increases with a... | Decreases with a... |
---|---|---|---|
Asset | Debit | Debit | Credit |
Liability | Credit | Credit | Debit |
Equity | Credit | Credit | Debit |
Notice how the left side of the accounting equation...
Assets = Liabilities + Equity
...has a normal debit balance...
Account Type | Normal Balance | Increases with a... | Decreases with a... |
---|---|---|---|
Asset | Debit | Debit | Credit |
Liability | Credit | Credit | Debit |
Equity | Credit | Credit | Debit |
...and the right side of the accounting equation...
Assets = Liabilities + Equity
...has a normal credit balance.
Account Type | Normal Balance | Increases with a... | Decreases with a... |
---|---|---|---|
Asset | Debit | Debit | Credit |
Liability | Credit | Credit | Debit |
Equity | Credit | Credit | Debit |