Certified Fraud Examiner 2025 – 400 Free Practice Questions to Pass the Exam

In accounting, a debit entry increases the balance of asset or expense accounts. When a debit is recorded, it reflects a value that adds to the company's resources or costs. For instance, when cash is received or an asset is purchased, the corresponding entry is made as a debit to reflect that increase.

Asset accounts represent the resources owned by a business, such as cash, inventory, or equipment. When a debit is applied to these accounts, it signifies an increase in value, contributing positively to the overall financial position of the company.

Expense accounts track the costs incurred by a business. Debits in these accounts indicate expenditures that reduce overall profit but signify that the business has spent money to obtain goods or services, which is essential for operations. Thus, increasing expense accounts through debits affects the income statement positively, as it reflects necessary costs associated with earning revenue.

Overall, in both asset and expense accounts, the incorporation of debits is critical for maintaining accurate financial records and ensuring the financial statements accurately represent the company’s economic activities.