Debits and credits in plain language
Learn how debits and credits work without the jargon—and why they matter for your reports.
Debits and credits in plain language
What it is
Every transaction in a company's ledger is recorded twice: once as a debit and once as a credit. This is called double-entry accounting. The two entries must always balance: total debits = total credits.
In Usystems, you usually don't write debits and credits yourself. Instead, when you create a document (invoice, bill, receipt), Usystems automatically calculates the debits and credits and posts them to your chart of accounts. But understanding what's happening behind the scenes helps you trust your reports.
Why it matters
- Accuracy: Double-entry accounting is a built-in check. If debits don't equal credits, something is wrong—and the system alerts you.
- Reports: Your balance sheet, profit & loss statement, and all financial reports are built from the debits and credits. If they balance, your reports are correct.
- Audit trail: Every transaction is recorded in both directions, making it impossible to hide a one-sided mistake.
How it works in Usystems
The basic rule
- Debit = left side of the ledger (for most accounts). Think of it as "money in" or "what you own."
- Credit = right side of the ledger (for most accounts). Think of it as "money out" or "what you owe."
But this varies by account type. Here's the practical version:
| Account Type | Debit increases | Credit decreases |
|---|---|---|
| Assets (cash, inventory, equipment) | Yes | No |
| Liabilities (loans, supplier payables) | No | Yes |
| Equity (owner's investment, retained earnings) | No | Yes |
| Revenue (sales, service fees) | No | Yes |
| Expenses (cost of goods, payroll, rent) | Yes | No |
Example: You create a sales invoice for 1,000 AFN
Usystems automatically posts:
- Debit: Accounts Receivable (asset) +1,000 AFN — you have the right to collect payment
- Credit: Sales Revenue (revenue) +1,000 AFN — you earned income
Total debits = 1,000. Total credits = 1,000. ✓ Balanced.
When the customer pays the 1,000 AFN:
- Debit: Cash (asset) +1,000 AFN — money entered the bank
- Credit: Accounts Receivable (asset) –1,000 AFN — the debt is collected
Again, balanced.
Example: You record a bill for 500 AFN from a supplier
Usystems posts:
- Debit: Expense (or asset, depending on what you bought) +500 AFN — you incurred a cost or received goods
- Credit: Accounts Payable (liability) +500 AFN — you owe money
When you pay the supplier 500 AFN:
- Debit: Accounts Payable (liability) –500 AFN — the debt is cleared
- Credit: Cash (asset) –500 AFN — money left the bank
Each entry balances, and the total ledger stays balanced.
Where you see it
- Document detail page: When you open a financial document, an "Accounting" section (if visible) may show the debits and credits posted to specific accounts.
- Transactions / Journal: Go to Transactions to see all posted journal entries with debits and credits side-by-side. Open Transactions
- Reports: Financial reports (balance sheet, income statement, trial balance) are built from the debits and credits. The reports group and summarize them, but the underlying data is always balanced. Open Reports
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