In double-entry bookkeeping, a debit is an entry on the left side of an account. Debits increase assets and expenses but decrease liabilities, equity and revenue.
Debits are one half of the double-entry system. Every transaction involves at least one debit and one credit, and total debits must equal total credits. The rules for debits are: debits increase asset accounts (like cash, receivables, equipment), debits increase expense accounts (like rent, wages, utilities), debits decrease liability accounts (like accounts payable, loans), debits decrease equity accounts, and debits decrease revenue accounts. A common source of confusion is that a debit to your bank account in your own accounting software is an increase (more cash), while a 'debit' on your bank statement from the bank's perspective is a decrease (money leaving your account). This is because you and the bank are looking at the same transaction from opposite sides. Modern accounting software handles debits and credits behind the scenes, so you typically do not need to think in terms of debits and credits when recording transactions. SortBooks further abstracts this by simply categorising transactions correctly.
SortBooks helps with the bookkeeping behind debit by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing debit by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
In double-entry bookkeeping, a credit is an entry on the right side of an account. Credits increase liabilities, equity and revenue but decrease assets and expenses.
Double-entry bookkeeping is a system where every transaction is recorded in at least two accounts - a debit and a credit - ensuring the accounting equation always balances.
A journal entry is a record of a financial transaction in the accounting system. It includes the date, accounts affected, amounts and a description of the transaction.
The general ledger is the master record of all financial transactions in a business, organised by account. It forms the basis for preparing financial statements.
A trial balance is a report listing all general ledger accounts and their balances at a specific date. Total debits must equal total credits, confirming the books are mathematically balanced.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.