On your bank statement, a debit generally means money going out. In your bookkeeping, however, a debit can also record an increase in the bank balance. This is not a contradiction: the words describe the two sides of an account, and their effect depends on the account being used.
At a glance
- A debit is the left-hand side of an account; a credit is the right-hand side.
- In double-entry bookkeeping, total debits in an entry equal total credits.
- An asset or expense generally increases with a debit. A liability, equity or income generally increases with a credit.
- Debit therefore does not always mean “money coming in”, and credit does not mean “expense”.
How accounts work
A transaction involves one or more accounts being debited and one or more being credited. The number of lines can vary, but the two totals must be equal.
| Category | Usual increase | Usual decrease |
|---|---|---|
| Assets: bank, receivables, equipment | Debit | Credit |
| Liabilities: payables, loans | Credit | Debit |
| Equity | Credit | Debit |
| Expenses: rent, salaries | Debit | Credit |
| Income: sales, services | Credit | Debit |
This table is a reference for ordinary accounts. Contra accounts and specific transactions require a different reading. Understand the nature of the account before applying a rule.
A method for choosing the correct side
Before asking “debit or credit?”, identify the accounts involved. Is the business receiving an asset, paying a liability, earning income or incurring an expense? Then establish whether each account increases or decreases.
For assets and expenses, an increase goes on the debit side. For liabilities and equity, as well as income, it goes on the credit side. A decrease uses the opposite side. This is easier to remember when you reason through the transaction before choosing the columns.
Avoid automatically translating debit as money out and credit as money in. An unpaid customer invoice increases a receivable with a debit, without any bank receipt. Depreciation debits an expense without a payment. These terms describe a recording method, not just movements in your bank account.
Example 1: buying supplies for CHF 500
Assume the business buys supplies that are consumed and pays immediately through the bank. VAT is excluded from this example.
| Account | Debit | Credit |
|---|---|---|
| Supplies expense | 500 | |
| Bank | 500 |
The expense increases with a debit. The bank account, an asset, decreases with a credit. If the purchase concerned a fixed asset, you would need to assess whether to recognise it as an asset instead of automatically using an expense account.
Example 2: a CHF 1,000 sale paid immediately
Again, VAT is excluded to focus on the underlying logic:
| Account | Debit | Credit |
|---|---|---|
| Bank | 1,000 | |
| Sales revenue | 1,000 |
The bank balance increases with a debit and revenue increases with a credit. A credit is therefore not necessarily money going out: here it records the sale.
Example 3: the customer pays later
When the invoice is issued, debit the customer account and credit sales revenue. When the customer pays, debit the bank and credit the customer account.
Do not record a second sale when payment arrives. You are simply replacing a receivable with available cash. Matching these movements is central to tracking customer payments.
An invoice including VAT also involves the relevant VAT accounts. The earlier examples deliberately exclude VAT so that two different concepts are not introduced at once.
An invoice with VAT uses three accounts
Consider a service already provided, taxable at 8.1%, by a business using the effective VAT reporting method and accounting for VAT on an agreed-consideration basis.
| Transaction | Debit | Credit |
|---|---|---|
| Invoice | Trade receivables: CHF 1,081 | Service revenue: CHF 1,000; VAT payable: CHF 81 |
| Later payment | Bank: CHF 1,081 | Trade receivables: CHF 1,081 |
The invoice entry balances: 1,081 = 1,000 + 81. No new revenue is recorded when payment is received. The customer no longer owes anything and the money is now in the bank.
Why does a bank statement seem reversed?
The statement is prepared from the bank’s perspective. Money the bank owes you is a liability for the bank. In your company’s accounts, your bank balance is an asset.
Do not copy the words debit and credit from the statement without considering your company’s account. Instead, reconcile the transactions and balances.
Following an invoice from sale to payment
This fictional example excludes VAT to isolate the mechanism. The business provides and invoices a service worth CHF 1,500. The customer pays CHF 1,000, followed by the remaining CHF 500.
| Transaction | Account debited | Account credited | Amount |
|---|---|---|---|
| Service invoiced | Trade receivables | Service revenue | CHF 1,500 |
| First payment | Bank | Trade receivables | CHF 1,000 |
| Final payment | Bank | Trade receivables | CHF 500 |
At invoicing, the customer owes CHF 1,500 and revenue is recognised. After the first payment, the bank has received CHF 1,000 and the customer still owes CHF 500. After the second payment, the receivable is cleared. Total revenue remains CHF 1,500, not CHF 3,000: the payments turn the receivable into cash; they do not create a new sale.
Each entry balances debits and credits. That alone does not prove everything is correct: a wrong account or a duplicate invoice can still produce balanced entries. Supporting documents and reconciled balances must also be checked.
Example 4: repaying a loan with interest
The business pays an instalment of CHF 850, consisting of CHF 800 of loan principal and CHF 50 of interest. The entry below assumes the interest has not already been recognised in another period:
| Account | Debit | Credit |
|---|---|---|
| Loan liability | 800 | |
| Interest expense | 50 | |
| Bank | 850 |
The bank balance falls by CHF 850, but the income statement expense is only CHF 50. The remaining CHF 800 reduces a liability already recognised in the balance sheet. Recording everything as bank charges would understate profit and overstate the outstanding debt.
From entries to an account balance
The company’s bank account starts with CHF 20,000. It buys the supplies in example 1 for CHF 500, then receives the CHF 1,000 sale proceeds in example 2. Its balance becomes CHF 20,000 − 500 + 1,000 = CHF 20,500.
In the Bank ledger account, the opening balance and receipt appear as debits, while the payment is a credit. The debit balance here represents money held at the bank. An overdraft needs a different interpretation and appropriate presentation as a liability. Do not assume an account called “Bank” always has a positive balance.
Moving from entries to balances is the principle behind the general ledger. It allows you to trace the origin of a balance sheet figure, then compare it with external evidence: a bank statement, loan confirmation or list of customer invoices. Reconciliation remains essential even when every entry balances.
How does this help you manage the business?
Understanding entries helps you identify duplicates, check a customer account and read a balance sheet or income statement. Software prepares some transactions automatically, but its suggestions may be classified incorrectly.
If you are unsure, have the entry checked before repeating the same error over several months. A consistent chart of accounts also helps you organise these checks.
Once entries are reliable, use cost accounting to understand the costs and contributions of individual products, services or customers.
Understand entries to check your accounts
You do not need to memorise every account number to keep track of your bookkeeping. Being able to explain what increases, what decreases and why already helps you spot many inconsistencies.
If some entries remain difficult to interpret, our accounting team can help connect your invoices and payments with the amounts shown in your accounts.
Frequently asked questions
Does debit mean positive and credit negative?
No. They are the two sides of an account. Their effect depends on the category of account.
Does an entry always have two lines?
No. It can include several debits and several credits. The totals must be equal.
Are balanced accounts necessarily correct?
No. An entry can balance while using the wrong account, amount or accounting period.
Sources and references
Romain Prieur is a Swiss certified public accountant and the founder of Entreprendre.ch. With more than ten years of experience in auditing and supporting businesses in Switzerland, he advises entrepreneurs on company formation, accounting and taxation.
