Basic Accounting: Normal Balances

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The words debit and credit have special meanings in accounting. A debit increases the left side of the T-account, and a credit increases the right side.

Contrary to the way these terms are commonly used in English, a debit does not always decrease the value of an account, and a credit does not always increase it.

To understand the effects of a debit or credit, you must know the account's normal balance. The normal balance is the side on which the account increases, and the side of the T-account on which the balance normally rests.

Asset, Expense, and Dividend accounts have a normal debit balance. Debits increase the values of these accounts. Liability, Revenue, and Common Stock accounts have a credit balance. They are increased by credits.

One trick to learning the normal balances is to memorize the sentence, "After Eating Dinner, Lets Read Comics," in which the first three words have the same initial letters as the accounts with normal debit balances (assets, expenses, dividends), and the last three words share a first letter with the normal credit balance accounts (liabilities, revenues, common stock).