0.2Vocabulary: debit/credit, assets/liabilities, expenses/income
The essentials in 30 seconds
- Debit / credit = two columns (left / right), not “minus / plus”: their meaning depends on the account type.
- Assets = what you own (uses); liabilities = where the money comes from (resources: equity, debts).
- Expenses − income = profit: profit if income exceeds expenses, loss otherwise, over a financial year.
Running case — Rachid forgets his banking reflex
Rachid sees “account debited” on his bank statement and panics; then his accountant shows him the SME's cash box: debiting this asset account increases it, because debit and credit are columns. Together, they sort what the SME owns (assets) and where the money comes from (liabilities), then compare the month's expenses and income to see the profit.
Sequel to case 0.1 — Rachid learns the grammar before double-entry.
1. Debit / credit, assets / liabilities
Debit / credit: these are NOT "minus" and "plus" (contrary to banking language), but the two columns of an account — left (debit) and right (credit); their meaning depends on the type of account.
Assets: what the company owns and uses. Liabilities & equity: where the money comes from (shareholders' equity, debts).
2. Expenses / income
Expenses are the costs linked to the activity (purchases, salaries, rents); income is the revenue (sales, services). Their difference forms the result (profit if income > expenses, loss otherwise).
3. The financial year
The financial year is the period (often 12 months) over which the activity is measured.
Not confusing the banker's debit/credit with the accountant's is the absolute prerequisite: this grammar makes every entry readable.
🔎 Concrete example — 🔎 Concrete example — Forget the banking reflex
Debit ≠ withdrawal.
Bank: « account debited €100 » = its own point of view.
Accounting: debiting an asset account (the cash box) INCREASES it.
→ think in terms of "columns", not "minus/plus".Result: the key to understanding double-entry bookkeeping (1.1).
Reflex: assets = what you have ; liabilities = where the money comes from.
Section vocabulary
- Debit / Credit
- The two columns of an account (left = debit, right = credit); their meaning depends on the account type.
Simple example: Rachid debits cash: the asset account increases.
What it is not: reading “debited” as an automatic withdrawal of money.
Reflex: think “columns”, never “minus / plus”.
- Assets
- What the business owns and uses: fixed assets, inventory, trade receivables, cash.
Simple example: The stock and cash of Rachid's trading SME.
What it is not: a supplier debt (that is liabilities).
Reflex: assets = uses, where the money went.
- Liabilities
- The origin of the resources financing the assets: equity (contributions, profits) and debts.
Simple example: Rachid's contributions and the loan financing his stock.
What it is not: saying “liabilities are the negative side”.
Reflex: liabilities = resources, where the money came from.
- Expenses / Income
- Expenses = business spending; income = revenue; their difference is the profit.
Simple example: Purchases and rent (expenses) versus sales (income) for Rachid's month.
What it is not: confusing an expense with a durable asset.
Reflex: income minus expenses = profit or loss.
- Financial year
- Period (often 12 months) over which activity is measured and accounts prepared.
Simple example: Rachid compares his 12-month year to see seasonality.
What it is not: a single month taken for the whole year.
Reflex: always place a figure within its financial year.
In practice — In practice — Master the fundamental vocabulary
- Remember that debit/credit are two columns (left/right), not "minus/plus": forget the banking language.
- Distinguish assets (what we own/use) from liabilities & equity (where the money comes from: shareholders' equity, debts).
- Distinguish expenses (costs) and income (revenue); their difference = the result (profit or loss).
- Place the financial year: the period (often 12 months) over which the activity is measured.
Ready-to-say script — explaining debit and credit to a partner (30 s)
“Forget the bank: debit and credit are just the left column and the right column. Debiting our cash increases it. Assets are what we own; liabilities are where the money comes from. Sales minus spending is our profit.”
Say it to a partner or employee: three sentences to defuse the banking reflex.
Copy-paste template — sorting my accounting words
ACCOUNT: _______________ | DEBIT (left) or CREDIT (right)? _______________
ASSETS (what you own): _______________ / LIABILITIES (where money comes from): _______________
EXPENSE (spending): _______________ / INCOME (revenue): _______________
FINANCIAL YEAR: _______________ | PROFIT (profit / loss): _______________Small business / tight budget
A two-column table is enough: on the left what you own, on the right where the money comes from — the assets/liabilities reflex with no software.
Algerian SME
Rachid sorts stocks, receivables and cash (assets) against contributions and supplier debts (liabilities) with his accountant, in dinars, every month.
Non-accountant employee
Remember one sentence: debiting cash increases it — everything else follows once you think in columns.
Double-entry warm-up
Practise saying for each transaction “which account, which column”: the direct warm-up for Level 1.
✓ Best practices
- Unlearn the banking reflex: debit/credit = columns, not +/−.
- Memorise: assets = uses (where the money goes) ; liabilities & equity = resources (where it comes from).
- Link expenses/income to the result (profit or loss).
✗ Common pitfalls
- Thinking "debiting" means withdrawing money (banking reflex).
- Thinking "liabilities means the negative" (shareholders' equity is there too).
- Confusing expenses (costs) and fixed assets (durable goods, assets).
Key takeaways
- Debit/credit = the two columns of an account (left/right), NOT "minus/plus" as at the bank.
- Assets = what the company owns/uses ; liabilities & equity = where the money comes from (shareholders' equity, debts).
- Expenses = costs, income = revenue; their difference forms the result (profit or loss).
- The financial year is the period (often 12 months) over which the activity is measured.
48h Challenge — apply tomorrow
Sort 5 items from your business (cash, stock, supplier debt, sale, rent) into assets / liabilities / expense / income. Check with your accountant.
- I can explain debit/credit without saying “minus/plus”.
- I can tell assets (uses) from liabilities (resources).
- I have sorted 5 real items from my business.
Frequently asked questions
Why doesn't "debiting" in accounting mean "withdrawing money"?
This is THE confusion that traps beginners, fed by banking language. When the bank says "your account was debited €100", it speaks from ITS point of view: for the bank, you are a creditor, and debiting you reduces what it owes you. In business accounting, debit and credit are just the names of the two columns of an account (left and right), with no "plus" or "minus" meaning in themselves. Depending on the type of account, debiting increases or decreases: debiting an asset account (e.g. the cash box) increases it, while debiting a liability account decreases it. You have to unlearn the banking reflex and think in terms of "columns": that is the key to double-entry bookkeeping (1.1).
How can I avoid confusing assets and liabilities?
A mnemonic: assets answer "what does the company own and what is it used for?" (the uses: buildings, machines, inventory, receivables, money in the bank), and liabilities & equity answer "where did the money that financed all this come from?" (the resources: partners' contributions, profits, loans, supplier debts). The assets show where the money went, liabilities & equity where it came from. That is why assets and liabilities & equity are always equal (everything you own has been financed by something) — the principle of the balance sheet (2.1). Never say "liabilities means the negative": a debt is on the liability side, but shareholders' equity is there too.
In accounting, debiting an asset account (e.g. cash)…