Even though using bookkeeping software will help with the daily use of accounting functions for a small business, it’s still important to have an understanding of the basic functions of accounting. Just because a calculator can help someone add and subtract, doesn’t necessarily mean that they will understand addition and subtraction. Understanding how debits and credits work is the first step into grasping the fundamentals of bookkeeping.

Accounting 101 Basics- What are Debits and Credits?

Any monetary transactions that affect the assets or liabilities of a business are posted to journals with debits and credits. Before the invention of computers, journals were posted manually with hand-written entries. Posting to manual journals is the best learning tool for understanding the basic concept of a debit and credit.

When posting to a journal, the debit (DR) and credit (CR) oppose each other and the entries must equal or balance each other. In terms of how to distinguish the function of the two entries, it’s best to look at how the two entries affect cash. Debits increase cash where as credits decrease cash.

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