The Most Misunderstood Rule in Accounting: Debits Do Not Always Mean Increase and Credits Do Not Always Mean Decrease
If you've ever taken an accounting course, you've probably heard someone say:
"Debits increase and credits decrease."
While that may seem true at first, it is actually one of the most misunderstood concepts in accounting.
The reality is much simpler:
Debits and credits do not inherently mean increase or decrease.
Instead, whether a debit or credit increases or decreases an account depends entirely on the type of account involved.
Why Students Get Confused
Many introductory accounting students learn that when cash goes up, you debit Cash. When cash goes down, you credit Cash.
Because of this, it's easy to assume that debits always increase and credits always decrease.
But then they encounter liabilities, revenue, or owner's equity accounts and suddenly the rule seems to stop working.
That's because the original assumption was never the real rule.
The Real Rule
Every account has a normal balance.
Some accounts increase with debits, while others increase with credits.
Accounts Increased by Debits
Assets
Expenses
Dividends (or Drawings)
Accounts Increased by Credits
Liabilities
Owner's Equity
Revenue
Many accounting students remember this using the acronym:
A-E-D = Debit
Assets, Expenses, and Dividends increase with debits.
Everything else generally increases with credits.
A Simple Example
Suppose your business provided $1,000 of services on account.
The journal entry would be:
What happened?
The asset (A|R) INCREASED with a debit.
The revenue account INCREASED with a credit.
In the same journal entry, the debit increased one account while the credit increased another.
This immediately shows that debits do not simply mean "increase" and credits do not simply mean "decrease."
Think of Debits and Credits as Directions
A better way to think about debits and credits is as directions on a map.
A debit means "left side."
A credit means "right side."
That's it.
Whether the account increases or decreases depends on where that account's normal balance resides.
For example:
Assets normally carry debit balances.
Liabilities normally carry credit balances.
Therefore:
Debiting an asset increases it.
Crediting an asset decreases it.
Crediting a liability increases it.
Debiting a liability decreases it.
The debit or credit itself isn't the increase or decrease—the account type determines the effect.
Why This Matters for Business Owners
Even if you're not preparing journal entries every day, understanding debits and credits helps you better understand your financial reports.
When your bookkeeping is done correctly:
Transactions are classified properly.
Financial statements are more accurate.
Errors become easier to identify.
Decision-making improves.
Many bookkeeping mistakes occur because someone focuses on memorizing rules rather than understanding how the accounting equation works.
Final Thoughts
One of the most valuable accounting lessons you can learn is this:
Debits do not always mean increase. Credits do not always mean decrease.
Instead, debits and credits are simply the mechanism used to keep the accounting equation in balance.
Once you understand which accounts normally carry debit balances and which normally carry credit balances, accounting becomes far less confusing and much more logical.
And that's when students stop memorizing accounting—and start understanding it.
About the Author
Dr. Brian Routh is the founder of TheAccountingDr.com, providing professional bookkeeping services and accounting education.
Before launching TheAccountingDr, Dr. Routh served as an Assistant State Auditor and built a career as a tenured Accounting Professor, teaching financial and managerial accounting for more than two decades.
His unique combination of auditing, education, and practical bookkeeping experience allows him to help organizations improve financial clarity, strengthen internal controls, and make better financial decisions.
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