These are a mechanism to ensure all entries are in balance. Each transaction must contain an equal amount of debits and credits. Depending on the type of account (Asset, Liability, Owners Equity, Income, or Expense) a debit or credit will either increase or decrease the account balance. Debits are entered as positive numbers while credits are entered as negative numbers.
Accounting uses what is referred to as a "T" account to represent transactions. Debits are shown on the left of the "T" while Credits are shown on the right of the "T". Following is a "T" account illustrating a donation as represented by debits and credits:
G/L Account
Debits
Credits
Checking Account
$500.00
Tithe Fund Receipts
$400.00
General Fund Receipts
$100.00
As illustrated a donation of $500.00 was made. In this transaction the total of the debits must equal the total of the credits. The checking account is an asset with a "debit" balance, so the 500.00 increases the balance in that account. The Fund accounts are Owner's Equity accounts with a "credit" balance, so the 400.00 and 100.00 increases the balance in those funds.
Following is a "T" account illustrating an expense entry as represented by debits and credits:
G/L Account
Debits
Credits
Checking Account
$100.00
Utility Expense (General Fund)
$100.00
As illustrated an expense entry of $100.00 was made. In this transaction the total of the debits must equal the total of the credits. The checking account is an asset with a "debit" balance, so the 100.00 decreases the balance in that account. The Utility Expense is tied to the General Fund account (Owner's Equity account) with a "credit" balance, so the 100.00 decreases the balance in that fund.