How are accounts affected by debits and credits?
In QuickBooks Online, we use double-entry accounting. This means every transaction affects at least two accounts, ensuring your books stay balanced. The total amount of debits must always equal the total amount of credits.
While QuickBooks Online handles debits and credits automatically for you when you use forms like invoices or expenses, understanding the basics can help you troubleshoot issues or review your journal entries.
How debits and credits work
You can visualize account changes using a T-account, which looks like the letter T.
- Debits appear on the left side of the T.
- Credits appear on the right side of the T.
Whether a debit or credit increases or decreases an account depends on the account type.
| Account Type | Debits | Credits |
|---|---|---|
| Assets | Increase | Decrease |
| Expenses | Increase | Decrease |
| Liabilities | Decrease | Increase |
| Equity | Decrease | Increase |
| Income | Decrease | Increase |
Example: Recording a sale
When you record a sales deposit, QuickBooks Online automatically creates the debits and credits for you:
- Debit your Bank account: This increases the balance of your checking account (money coming in).
- Credit your Income account: This increases your sales revenue.
Even though you don’t see the T-accounts when you enter the deposit, the system ensures the debit to the bank equals the credit to the income, keeping your ledger accurate.