Debits and Credits
This guide explains account normality and how debits and credits are used in the API.
Ledgers was built with double-entry principles in mind. There is only a subset of accounting rules a user needs to know to map their accounts and start recording transactions and tracking balances on Ledgers.
Accounts & Transactions
Accounts are Ledgers objects that represent the balances you will track. Transactions are Ledgers objects that represent the financial transactions written into the ledger. Each of these is represented by the API objects
ledger account and
ledger transaction, respectively.
ledger transaction object is composed of two or more
ledger entry objects.
ledger entry objects have a
direction property that takes one of two values:
When a transaction is created, at least one entry needs to have a
debit direction property (and therefore called a debit, or an entry on the debit side), and at least one entry needs to have a
credit direction property (and therefore called a credit, or an entry on the credit side).
Put differently, a transaction will have at least one debit entry and at least one credit entry. Each entry is associated with and updates the balance of a single account.
Debit Normal vs. Credit Normal Accounts
Accounts have types. Such types are represented by the
normal_balance field that
ledger account objects have on the API. This field will take one of
debit normality - or debit normal accounts - represent funds your company owns. They are broadly associated with uses of funds, assets, and expenses.
credit normality - or credit normal accounts - represent funds your company owes. They are broadly associated with sources of funds, liabilities, and revenue.
General examples include:
|Debit Normal Accounts||Credit Normal Accounts|
|Accounts that represent assets such as cash or principal outstanding on a loan.||Accounts that represent liabilities such as balances held on behalf of users in a digital wallet or owed to external parties such as investors in your platform.|
|Accounts that represent expenses such as card processing fees or payments to third parties executed in the course of business.||Accounts that represent revenue or income such as interest revenue in your lending platform or revenue from fees.|
Debits and credits in a transaction
Transaction entries will modify accounts based on the normality of the account:
|Effect on Balances||Debit Normal Account||Credit Normal Account|
Entries on the debit side will increase debit normal accounts, while entries on the credit side will decrease them. Conversely, entries on the credit side will increase credit normal accounts, while entries on the debit side will decrease them.
- For more information on debits and credits, take a look at our Accounting for Developers series.
- To understand how to deploy these principles within your specific use case, review our Use Case Guides.
Updated 10 months ago