We will use a ledger account (also known as a T-Account) to explain the concept of debits and credits. Debits and credits are used to record increases and decreases in account balances.
A ledger account is a place where increases or decreases are recorded for a given account. A ledger account is maintained for every account listed in the chart of accounts in order to accumulate the information about the account for a given time period. In its simplest form, the ledger account is divided into two columns. The left column is called debit and the right column is called credit. An amount recorded on the left side of the account is called a debit entry; on the right side, it is called a credit entry. The simplest form of ledger is called the T-Account. An example of a T-Account is shown in Figure 2.1 below.
One of the most difficult concepts for students to understand is that of debit and credit:
There is no quality of good or bad associated with either term, so do not think that, if an account is debited, it is bad; in fact, it might be a good thing. Debit only means "left." Credit only means "right." Debits and credits are used to record changes (increases or decreases) in the accounts (ledger accounts or T-Accounts) as transactions occur.