What do the terms debit (Dr.) and credit (Cr.) indicate in accounting?

The terms debit (Dr.) and credit (Cr.) serve as fundamental building blocks in accounting, primarily indicating the left and right sides of a ledger. In double-entry bookkeeping, every financial transaction affects at least two accounts, and Debits are recorded on the left side, while Credits are recorded on the right side.

In accounting practice, a debit entry typically signifies an increase in asset or expense accounts, while a credit entry indicates an increase in liability, income, or equity accounts. Conversely, debits can decrease liabilities and equity, while credits can decrease assets and expenses. This structure maintains the balance of the accounting equation (Assets = Liabilities + Equity).

The concept of left and right aligns closely with the layout of T-accounts used in accounting, where debits are always shown on the left and credits on the right. This orientation helps ensure that every transaction is properly recorded and balanced, which is a cornerstone of sound financial reporting.