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At this point in time, I hope that it has become evident to you that the hardest part of the double-entry bookkeeping process is to figure out how accounts are debited or credited for each type of journal transaction you experience.

Recap: What Causes Increase or Decrease in Account Balance

Here I will represent the table first shown in the Introduction section:

Account Type	To Increase	To Decrease
Asset	Debit	Credit
Liability	Credit	Debit
Revenue/Income	Credit	Debit
Expense	Debit	Credit
Owner's Equity (DR)	Debit	Credit
Owner's Equity (CR)	Credit	Debit

Just to recap, for assets and liabilities, the concept of debiting and crediting is fairly straight forward. Debiting will increase what you own, while crediting increases what you owe.

For example:

Date	Post	Debit	Credit
Jul 15	Bank (1010)	1,500.00
	Bank Loan (2010)		1,500.00
	Borrowed money from bank for more capital.

Note here that the asset is being debited and the bank loan account is being credited. In this scenario, more is being added to what is owned (bank is debited), but in the process, more is being added to what is owed (since bank loan is being credited). Note that since one account was debited $1,500.00 and one was credited the same amount, the books will still remain in balance after this transaction is applied.

Date	Post	Debit	Credit
Jul 15	Credit Card - VISA (2001)	250.00
	Bank (1010)		250.00
	Paid off some of my credit card bill.

Here, the reverse is happening. By debiting the credit card account, we are decreasing the amount owed, and by crediting the bank account, we are also decreasing the amount owned. By virtue, we are using capital to pay off the credit card balance. Note that this transaction is still balanced.

Note that in both the cases above, money is moved from one asset account to another, or from one liability account to another. As this involves decreasing the value of one account and increasing the value of another, everything clearly remains balanced.

Date	Post	Debit	Credit
Jul 15	Cash (1000)	350.00
	Bank (1010)		350.00
	Transferred money from bank to cash.

Jul 15	Credit Card - VISA (2001)	500.00
	Bank Loan (2010)		500.00
	Moved credit card balance to bank loan.

Where do revenue, expenses, and drawings/dividends fit in?

It would be nice if revenue, expensees, and drawings/dividends would follow the model described above, but unfortunately they do not (they appear to be reversed).

As seen from the table above, revenues increase when credited, and decrease when debited. But if revenue increases what you own, then shouldn't debiting this account cause it to increase, like with Assets? Furthermore, expenses, which increase what you owe, appear to increase when debited and decrease when credited, even though it should act more like a liability account. Finally, drawings/dividends (O. Equity (DR)), takes money out of the business, but yet it increases when debited, and not credited.

I am not sure if you see this yet but you may notice that all these accounts work in reverse! If we had defined debit to mean increase in what we owe, and credit to mean an increase in what we own, then suddenly revenue, expenses, and drawings/dividends makes sense. But this begs the question, why?

It all has to do with Owner's Equity (CR). As mentioned in the Introduction, Owner's Equity (CR) represents the net worth of the business. Thus it would be logical that these accounts increase when debited and decrease when credited (based off the asset-liability trend above). However, due to the fact that the Fundamental Accounting Equation is Assets = Liabilities + Owner's Equity; by virtue of this equation, Assets increase when debited, while Liabilities and Owner's Equity (CR) increase when credited—as we need the equation to balance.

But again, what does this have to do with revenue, expenses, and drawings/dividends?

To digress into this topic, it is important to understand the purpose of revenue, expenses, and drawings/dividends. In essence, these accounts exist to keep track of changes in net worth, or total Owner's Equity (CR). It would be possible to do away without any of these accounts, and just credit Owner's Equity (CR) when you make a profit, and debit Owner's Equity (CR) when you pay off an expense, or take money out of the business for drawings/dividends.

However, the power of having these accounts is that it allows you to better track where your money is going. Instead of digressing the mess of only modifying total net worth and trying to sift through all that data, you can create multiple revenue accounts, multiple expense accounts, and such, so that it is easier to see what was spent or earned where and why. Finally, after a certain period of time, usually a year, all revenue, expense, and drawinbgs/dividends accounts are assigned to $0.00, with all balances transferred over to the final net worth accounts, or Owner's Equity (CR).

Since we know that Owner's Equity (CR) is weird, in that it increases when credited and decreases when debited (almost as if it is flipped), then it makes sense that revenue, expenses, and drawings/dividends are also flipped, since they also act in proxy to Owner's Equity (CR).

Examples of Debiting and Crediting with these Accounts

Interestingly, you will see that even with this weird flip, assets and liabilities will still behave the way we expect them to.

Let us start with viewing how expenses are paid.

Date	Post	Debit	Credit
Jul 15	Rent Expense (5001)	1,200.00
	Bank (1010)		1,200.00
	Paid monthly rent.

Here, we debited the expense account to indicate that we paid it and money has left out business (remember that this debiting reflects on Owner's Equity (CR), as debiting decreases our net worth), and we have credited Bank. As Bank is an asset account, crediting it means we have taken money out (for what we owe), and thus the value in Bank will decrease. Note that if we wanted to, we could also pay this expense with a liability account as well. In that scenario, we would still be crediting the liability, thus increasing the amount we owe, as expected.

For revenue accounts:

Date	Post	Debit	Credit
Jul 15	Bank (1010)	516.22
	Coffee Sales (4005)		516.22
	Inputed profit from Coffee Sales for the week.

Note that because revenues increase when credited, this adds more to our revenue accounts (which in turn increases Owner's Equity (CR)). Notice that to balance the equation, we must debit the asset account, which in this case is Bank. This makes sense, as when you make a profit, the amount of assets you have goes up. Note that if a liability account had been debited instead, it would imply that the profit was used to pay off a portion of the liability, still increasing your net worth.

Finally, for drawings/dividends, or Owner's Equity (DR):

Date	Post	Debit	Credit
Jul 15	Drawings (6001)	356.88
	Bank (1010)		356.88
	Owner has taken some money out of business for personal reasons.

Here, because Owner's Equity (DR) increases when debited, we must credit another account to keep the transaction in balance. When taken out of assets or liabilities, a credit means we are adding more to what we owe (net worth goes down), as seen in the transaction above. In that particular scenario, we are crediting and thus decreasing the value of the asset account Bank, but we could also easily credit a liability account, increasing its account, and thereby an increase in what we owe in liabilities.

Next Steps

Credits

Please note that most of the information from this site is taken from the book "Bookkeeping for Canadians for dummies" by Lita Epstein and Cécile Laurin.

(Epstein, L., & Laurin, C. (2019). Bookkeeping For Canadians For Dummies. Hoboken, New Jersey: John Wiley & Sons, Inc.)