Debit and credit, without the jargon

Money moves, it does not appear

You sell goods for ₹1,000 cash. Two things happened, not one: your cash went up by ₹1,000, and your sales went up by ₹1,000. Write only one of them down and your books cannot balance, because you have recorded an effect with no cause.

That is the whole of double entry. Every transaction is written twice — once as where the value went, once as where it came from — and the two sides are always equal.

What the two words mean

Forget "debit means money out", which is what a bank SMS taught you and is the bank's point of view, not yours. In your books:

• Debit is the side that receives value. What you now have more of, or what you have spent it on.
• Credit is the side that gives value. Where it came from — a sale, a loan, a supplier who has not been paid yet.

A bank's SMS says "debited" when your balance drops because in the bank's books you are a creditor and they are reducing what they owe you. In your own books the same payment credits your bank ledger. Same event, two sets of books, opposite words — which is why the bank's wording is the single biggest source of confusion here.

The five kinds of ledger

Every account you will ever open is one of five things, and each has a normal side:

• Assets — cash, bank, stock, what customers owe you, the shop's fittings. Normally debit.
• Liabilities — what you owe: suppliers, loans, GST payable. Normally credit.
• Capital — what the business owes you, the owner. Normally credit.
• Income — sales, discount received, other income. Normally credit.
• Expenses — purchases, rent, salaries, freight, electricity. Normally debit.

An entry that increases an account goes on its normal side. One that decreases it goes on the other. That is the whole rule, and the classroom rhymes about "debit the receiver" are this rule said in 1890s English.

Four everyday entries

• Cash sale ₹1,000 — debit Cash ₹1,000, credit Sales ₹1,000.
• Credit sale to Sharma Traders — debit Sharma Traders, credit Sales. Nothing has reached your cash box; the customer owes you instead.
• Sharma pays you — debit Cash or Bank, credit Sharma Traders. His balance comes down. Notice that no sale is recorded, because the sale was recorded when it happened, not when it was paid for.
• Rent paid ₹15,000 — debit Rent, credit Bank.

The third one is where most self-taught books go wrong: the sale gets counted twice, once when it was made and again when the money arrived, and the year's turnover comes out far too high.

What software does with this

None of it is meant to be done by hand at a counter. You raise a bill, record a receipt, key a payment — and the two sides are written for you, from the document. In Aned Book that is the Silver edition: the posting is derived from the document, so an invoice, a receipt and a bank row all reach the ledgers through the same engine and cannot disagree with the bill they came from.

Which edition. Accounting — ledgers, vouchers, trial balance, profit & loss and balance sheet — is in Silver. Basic is billing and inventory: invoices, stock, parties, outstanding and GST reports, and no ledgers. Both prices are on the pricing page.

This page explains how book-keeping works so a shopkeeper can follow what an accountant is asking for. It is not accounting or tax advice — talk to your accountant before you rely on it for a filing or a return.

Questions

Is debit always money going out?

No — that is the bank’s wording, from the bank’s books. In your own books a debit is the side that receives value, so cash coming in is a debit to cash.

Do I have to do double entry for a small shop?

You do not have to think in it, but you do need it the moment you want a profit figure you can trust, a balance sheet, or a loan. Software writes both sides from the bill you already raised.

What is a contra entry?

One where both sides are your own money — cash deposited into the bank, or drawn out of it. Nothing was earned or spent, so it is kept separate from receipts and payments.