Debit and credit in plain words
Debit is the left column, credit is the right, and they always balance. Here's the one table to remember, worked through Kuting Kitchen's sale, purchase, rent and payout.
← 3.1 How money flows, from sale to reportWhere you'll use them
Every page of the books has two money columns: debit and credit. Each of the six books has them, and every sale, payout, bill and payment you record goes into both.
At month-end the general ledger gathers them account by account, still in debits and credits, and the trial balance checks that all the debits equal all the credits. If software writes your entries, this is how you read and check them.
Five kinds of account
Every amount you write goes to an account, and every account is one of five kinds:
| Asset | What the business owns or is owed: cash, stock, the receivable from Shopee |
|---|---|
| Liability | What it owes: VAT to BIR, unpaid suppliers |
| Equity | What belongs to the owner: Carla's capital |
| Income | What it earns: sales |
| Expense | What it costs to run: rent, marketplace fees |
"Debit" doesn't mean losing money
At the bank, a debit is money leaving your account, so the word sounds bad. In bookkeeping it means something much plainer: which column.
| Debit | Credit | |
|---|---|---|
| Short form | Dr | Cr |
| Column | Left | Right |
| Good or bad? | Neither | Neither |
| Up or down? | Depends on the kind of account (steps 5 and 6) | |
Every entry has both sides, and they balance
Here's the ₱480 Shopee sale. Shopee owes Kuting Kitchen ₱480.00 (left). That's made of ₱428.57 of sales and ₱51.43 of VAT owed to BIR (right).
Left total = right total. Every entry, every time. That's double entry.
Assets and expenses grow on the left
To increase an asset or an expense, debit it. To decrease it, credit it.
In the sale, the receivable from Shopee is an asset going up, so it's a debit.
Liabilities, equity and income grow on the right
To increase a liability, equity or income, credit it. To decrease it, debit it.
In the sale, Sales (income) and Output VAT payable (a liability) both go up, so both are credits. That's the whole rule, and the one table worth remembering.
A purchase: stock in, owed to the supplier
The supplier delivers ₱6,720 of cat food, to be paid at month-end. Stock goes up (debit Inventory ₱6,000), and so does the VAT Kuting Kitchen can claim (debit Input VAT ₱720).
It now owes the supplier, a liability going up: credit Accounts payable ₱6,720.
Rent: one debit, two credits
Rent is ₱30,000, an expense going up: debit. Kuting Kitchen pays the landlord ₱28,500, so Cash goes down: credit.
The other ₱1,500 was withheld and is now owed to BIR, a liability: credit. ₱28,500 + ₱1,500 = ₱30,000. Balanced.
If it doesn't balance, something's missing
A staff member records the Shopee payout: cash ₱405.86 and tax withheld ₱2.14 on the left, and clears the ₱480 receivable on the right.
Left is ₱408.00, right is ₱480.00. The ₱72.00 gap is the Shopee fee: ₱64.29 of expense and ₱7.71 of input VAT. Add them, and it balances. An entry that won't balance is telling you what you forgot.
Pop Quiz: which side?
Pick the debit (Dr) and credit (Cr) for each.
Carla puts ₱100,000 of her own money into Kuting Kitchen's bank account.
Cash (an asset) goes up: debit. Her stake in the business (equity) goes up: credit. It isn't a sale.
A TikTok Shop order is invoiced for ₱560 (₱500 + ₱60 VAT). TikTok Shop hasn't paid yet.
No cash yet, so the asset that grows is the receivable from TikTok Shop. Sales and Output VAT payable both grow on the credit side.
At month-end, Kuting Kitchen pays the supplier the ₱6,720 it owes.
The stock was recorded when the invoice came. Now the debt goes down (debit the liability) and so does cash (credit the asset).
Kuting Kitchen pays BIR the ₱1,500 it withheld from the rent.
The rent expense was already recorded. Paying BIR clears the liability (debit) and reduces cash (credit).
General information for learning, not tax advice. Kuting Kitchen and its numbers are fictional. Account names vary between charts of accounts; the debit and credit rule doesn't.
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