Module 1 · Foundation · 9 min read

Double entry in plain language

You will be able to: Explain debit and credit as the two sides of one entry, without 'good' or 'bad' meanings; State which side increases each of the five roots; Write the debits and credits for simple cash, credit purchase and sale transactions with 5% VAT.

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Double entry is one rule: every transaction is recorded twice, once as a debit and once as a credit, and the two totals are always equal. Nothing is ever recorded on one side only. This is why a business can always check its books by adding up debits and credits.

Debit and credit are just sides

A debit is an entry on the left side of an account and a credit is an entry on the right side. They do not mean 'money in' or 'money out', and a credit is not good or bad. What a debit or credit does to an account depends on the account's root.

RootIncreases withNormal balance
AssetDebitDebit
ExpenseDebitDebit
LiabilityCreditCredit
EquityCreditCredit
IncomeCreditCredit

The idea behind the table is the accounting equation: Assets = Liabilities + Equity. Income and expenses feed into equity through profit. Increase an asset and something on the other side must also grow (a liability, equity or income) or another asset must shrink.

Three transactions

1. The owner invests AED 50,000 in cashCash in Hand is an asset and it grows: debit Cash in Hand 50,000. The owner's stake grows: credit Owner's Capital 50,000. Debits 50,000 = credits 50,000.
2. Stock bought on credit: AED 2,000 plus 5% VATVAT is 5% of 2,000 = AED 100, so the supplier is owed AED 2,100. Debit Inventory 2,000 (stock is an asset). Debit VAT Input 100 (VAT you can reclaim is an asset). Credit Trade Payables 2,100 (a liability). Debits 2,100 = credits 2,100.
3. A cash sale of AED 1,000 plus 5% VATVAT is AED 50, so the customer pays AED 1,050. Debit Cash in Hand 1,050. Credit Sales 1,000 (income). Credit VAT Output 50 (a liability: you owe it to the tax authority). Debits 1,050 = credits 1,050. The cost of the goods sold is a second pair of lines that we meet in lesson 7.

An entry can have more than two lines, as examples 2 and 3 show. The rule is only that the debit total equals the credit total.

How Zeyto enforces it

  • A journal cannot be posted until the Balance box shows Difference 0.00.
  • Documents such as invoices work out their own debits and credits; the server asserts they balance before saving.
  • The Posting Trail report shows a chip next to a document: Balanced is normal, and a red NOT BALANCED panel would mean the posting itself is wrong.
  • Nothing posted is ever edited or erased. Amend and Cancel add reversing entries: the same amounts on the opposite sides.
A new journal voucher with two lines, Cash in Hand debited 1,000 and Sales credited 1,000, and the totals box showing a difference of 0.00 and the status Balanced.

The Balance box shows Difference 0.00 when debits equal credits.

The Balance box shows Difference 0.00 when debits equal credits.
TipIn Zeyto's ledger reports, the Running Balance is debits less credits. A positive figure is a debit balance and a minus figure is a credit balance. So a customer who owes you shows a positive balance on Trade Receivables, and Trade Payables normally shows a minus.

A habit worth building

For any transaction, ask three questions. Which accounts changed? Is each one going up or down? Which side does that take on that account's root? Then add each side up. If the totals differ, you have missed a line, very often the VAT line.

The same journal after changing the credit to 900: the Difference box shows 100.00 and the Before posting box explains that the entry does not balance.

Change one side and Zeyto shows the difference and refuses to post.

Change one side and Zeyto shows the difference and refuses to post.

Try it in the demo

  1. Open https://demo.zeyto.app/demo-app/ and sign in (user admin, password demoAdmin123). This is a public demo with sample data, so nothing you do there affects a real business.
  2. Open Accounting, then Journals, then press + New. Do not post anything.
  3. In the first line pick Cash in Hand and type 1,000 in Debit. In the second line pick Sales and type 1,000 in Credit. Watch the Balance box show Difference 0.00.
  4. Change the second line to 900. Read the 'Before posting' box to see what stops Post. Leave the screen without posting.
Open the live demo

Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.

Key takeaways
  • Every transaction has equal debits and credits; a debit is simply the left side.
  • Assets and expenses increase with debits; liabilities, equity and income increase with credits.
  • VAT is its own line: VAT Output (credit) on sales, VAT Input (debit) on purchases.

Check yourself

5 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.

1. In double entry, total debits and total credits of every entry are:

2. What is the normal balance of an Income account such as Sales?

3. A shop pays AED 3,000 rent in cash. Which entry is correct?

4. Stock is bought on credit for AED 2,000 plus 5% VAT. What is credited to Trade Payables?

5. A cash sale is AED 800 plus 5% VAT. Which lines are part of the entry? (Select three.)

Select all that apply.

Previous: The chart of accounts and account groupsNext: Journal vouchers

Practice questions for this module · Printable study sheet