Course · Act I: How a Business Works · Chapter 3
Debits and credits
How double-entry bookkeeping works: every transaction changes at least two accounts. Covers journal entries, debits, credits and accounts payable.
Key terms
- Double entry
- Every transaction changes at least two accounts, so the books always balance.
- Journal entry
- A transaction written as debits (left) and credits (right). Total debits = total credits.
- Debit (Dr)
- Left side. Grows assets, expenses and dividends; shrinks liabilities, equity and revenue.
- Credit (Cr)
- Right side. Grows liabilities, equity and revenue; shrinks assets and expenses.
- Accounts payable
- Money owed to suppliers for things bought on credit. A liability.
“Debits, Credits & Double Entry” is part of the full course: 8 puzzles on debits and credits, with a story that carries through all five acts. Try this act’s free chapter, “Revenue, Costs, Profit”, first.