What are debit and credit?
Do I really have to know about debit and credit when using Bokio?
Although we’d like everyone to be able to use Bokio regardless of their level of knowledge about bookkeeping, we’d also like to teach people about how bookkeeping works. After all, who doesn’t like being good at what they do?
We create accounting records in different accounts in the chart of accounts and use double entry bookkeeping. There is a debit side and a credit side. The debit side must always equal the same as the credit side. Bokio will normally calculate this for you based on our bookkeeping templates.
There are five different types of accounts that can be debited or credited.
- Assets (Accounts 00-1999 in Bokio)
- Liabilities (Accounts 2000-2999 in Bokio)
- Equity (Accounts 3000-3999 in Bokio)
- Income (Accounts 4000-4999 in Bokio)
- Expenses (Accounts 5000-9999 in Bokio)
Assets and expenses increase in debit whilst equity, income and liabilities increase in credit.
The debit column is to the left and the credit column to the right.
For example when when paying for the rent for premises from the bank (an asset) the bank decreases so it becomes a credit and rent (an expense) increases so it is a debit:
Another example is if you send an invoice to a customer with 30 days credit. The debt due to you (an asset) increases so it is a debit and sales (income) increases and it is therefore a credit.