Debits and Credits Cheat Sheet: Understand Accounting Essential Concepts in a Few Minutes

Accounting is more than just a financial process. It consists of many terms and concepts that need your proper attention individually to maintain financial statements accurately. 

However, starting with understanding the concept of debit and credit cheat sheets is a perfect decision, as these terms are considered the heart of the accounting system.

Therefore, let’s dive into this informational article, in which we present a debits and credits cheat sheet to make these terms easier to grasp with simple definitions and helpful examples.

What do Debit and Credit Mean in Accounting?

As a business owner, you should recognize the accounting fundamental terminology, debit and credit, precisely to understand your company’s transactions without any difficulty. 

In simple words, debit and credit are terms used to illustrate the record of money going in and out of a business’s financial records, to keep the accounting equation balanced. 

Moving further, a debit (Dr) represents the amount of money added to a company’s dividends, assets, and expenses. For instance, if a business purchases equipment with cash, the equipment’s account will be debited because now the business has more equipment.

Similarly, a credit (Cr) represents the amount of money taken out of assets, expenses, and added to the company’s equity, liabilities, and revenue. By using the same business example, in this case, cash accounts are credited because the business has spent the cash. 

Therefore, according to the double-entry accounting system, every transaction that took place has at least one debit and one credit amount in it, and they must always be the same. 

Suggested Read: Accounting for Startups: An Entrepreneurial Guide to Maintain Financial Records

Debits and Credits Cheat Sheet: Formulas and Examples 

Adhering to the basic principles of Dr and Cr is critically important to managing finances effectively. Here, we present the simplest form of debit credit cheat sheet to help you understand with some examples. 

1. Debit Formula and Examples

In accounting, assets, liabilities, and equity are the three significant parts of the balance sheet. 

Where the asset refers to the resources owned by a company and has a monetary benefit. For example, intellectual property, company car, and many more. Thus, we can state that assets are debits, which indicates the value that comes into the company. 

Furthermore, check out the spectrum below to learn the formula of Dr with its example. 

Formula for debit in a cheat sheet: 

Debits(Dr)= Increase in Assets, Expense, and Dividends Accounts

Debits(Dr)=Decrease in Liabilities, Equity, and Income Accounts 

Example 1: Purchasing Office Equipment With Cash 

Let’s assume there’s a Viva Electronics that buys the equipment (laptop) for their business for $50,000. Accordingly, the value of the equipment increases, so the entries will be recorded on the left side of the balance sheet as a debit payment amount.

• The laptop here is identified as an asset, which is increasing assets, so the amount will be recorded as a debit to equipment.  

• Paid cash will be recorded as the credit cash, as the assets are decreasing in this case. 

Example 2: Paying the Electricity Bill by Bank Transfer 

Using the same business, let’s assume, Viva Electronics has paid its electricity bill cost $80,000 by transferring money using net banking. Therefore, the amount spent is increasing the company’s expenses, so the entries will be posted under the debit column. 

• The amount that was used to settle the company’s electricity bill is increasing the expense, so it will be recorded as a debit electricity expense. 

• Cash that has been spent to settle the bill ($80,000) will be recorded as a credit to cash or bank, because money is going out of the company. 

In essence, think of money that comes into the company or maximizes your expenses or assets, because that is your transaction, which you have to post under the debit column.

2. Credit Formula and Examples 

In contrast, Cr helps to show the flow of money, which generally increases the value of liabilities and revenue and subsequently decreases the balance of a company’s assets, expenses, or loss accounts. 

Thereby, the credit is the amount that goes out of the business. Additionally, let’s examine the basic formula of credit with some illustrations. 

Formula for credit in a cheat sheet:

Credit (Cr) = Increase in Liabilities, Equity, and Income Accounts

Credit (Cr) =Decrease in Assets, Expense, and Dividends Accounts 

Example 1: Take a Bank Loan for Business 

Let’s suppose the Flora cosmetic traders took a bank loan cost $50,000 to expand their business. Consequently, the loan value increases the liability, so the entries will be recorded on the right side of the balance sheet under the credit column. 

• The business has borrowed the money and is obliged to repay, which increases the liability of the company, so the loan amount ($50,000) will be credited to the loan payable. 

Example 2: Sells a Business Product 

This time, Flora cosmetic trader has done the sale cost $200,000 in its fiscal year. Because of this, the amount contributes to the rise of the company’s income, so these entries will be posted under the credit column. 

• The business sells its products cost $200,000, which has significantly increased the company’s income, so the received amount will be credited to sales revenue. 

In a nutshell, think of the money that goes out from your business in the form of loan repayments or purchasing the equipment, because those transactions will be considered as credits on your books. 

Read More: Is Accounts Receivable an Asset or Liability? Here’s the Detailed Answer

How do Debit and Credit Affect Different Accounts? 

As of now, we know that debit and credit both affect different accounting. Thus, comprehending their implications will help you monitor what your business owes, owns, earns, and spends without any complication. 

Hence, in this section, we will discuss the impacts on the cheat sheet for debits and credits individually. 

1. Changes on Equity Accounts of Debits and Credits Cheat Sheet 

Equity accounts show the proportion of how many business assets belong to its owner, after settling all the debts and payments. In short, the value that comes after subtracting what the business owes (liabilities) from what the business owns (assets) is posted under equity accounts. 

Commonly, this sort of accounting contains preferred or retained stock, treasury stock, and other comprehensive income (OCI). However, debits and credits act entirely differently on this account, according to the nature of the transactions. 

For instance, if a business owner takes a bank loan to raise funds of $20,000 for his business, which increases the equity as the owner is investing more in the company, it will be recorded as a credit. 

Similarly, if the cost decreases the equity, such as when the owner repays the amount, it will be recorded as a debit. 

2. Changes on Liability Accounts of Debits and Credits Cheat Sheet 

Liability accounts show the amount of money a company owes to others, like unpaid bills, loans, debts, and the rest. Likewise, this account includes loans payable, accounts payable, and wages payable. 

Moving further, if a business borrows monetary funds from the bank or any other third party for the investment, that contributes to raising the liabilities will be recorded as a credit. 

Whereas, the amount that redeems the debts and reduces the liability will be posted as a debit. 

Briefly, the money you owe is credited, and the value you receive will be debited in liability accounts.

Therefore, Dr and Cr both affect the accounts in their specific ways. Knowing their essence makes tracking your money less complex and keeps your cash flow statement accurate. 

Read More: Corporate Accounting: Definition, Importance, Types, and Career Potential in 2025

Common Mistakes You Should Avoid While Recording Accounting Debit Credit Cheat Sheet

Posting the debits and credits accurately is significant to keep your financial accounts balanced and to maintain the records for future reference. Any sort of small mistake can lead to big problems in your accounts. 

Therefore, here we present some basic errors you should avoid, so your documents stay reliable. 

1. Record the Different Debit and Credit Transactions: Remember, the total amount of debit and credit transactions will always be the same. So, ensure each entry is balanced; if not, your books won’t match. 

2. Use the Wrong Accounts for a Transaction: Understanding the nature of the transaction is a must; posting credit into debit or vice versa can lead to an imbalanced bookkeeping.

3. Misclassify Transaction Types: Confusion between asset, liability, and revenue can mismanage your financial statement. Firstly, classify the transaction type and then record it accordingly. 

4. Not Updating Accounts Regularly: Delaying in updating your book can lead to incorrect debt records. You must start practicing posting loans, repayments, and income at least once a month.  

5. Enter the Incorrect Amount: While recording, ensure that no typing errors have been made. This minor mistake can create a severe problem in your finances. 

In brief, minimizing usual recording mistakes can help you in maintaining your financial records accurately and making business decisions legitimately.

Conclusion 

To wrap it up, debits and credits are the building blocks of accounting. Being familiar with their nature and classification is crucial to make sense of every transaction that occurs on your financial statements. 

Therefore, as we come to the end of this article, we are assured that now you will be better equipped with this debits and credits cheat sheet transactions with clarity and confidence. 

Read Next: Tax Accounting: Definition, Types, Importance, Methods, and Effective Steps to Calculate

Frequently Asked Questions 

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