Debit — Definition, Formula & Examples
Debit is an amount of money withdrawn or subtracted from an account, reducing the account balance. When you spend money, use a debit card, or pay a bill, the transaction is recorded as a debit.
A debit is a financial entry that decreases the balance of an asset account by a specified amount. In arithmetic terms, applying a debit of amount to a balance produces a new balance .
Key Formula
Where:
- = Account balance after the debit
- = Account balance before the debit
- = Debit amount (money subtracted)
How It Works
When a debit occurs, you subtract the debit amount from your current balance to find your new balance. If your checking account has $500 and you make a $120 purchase with your debit card, your new balance is $500 − $120 = $380. Multiple debits in a row keep reducing the balance. If debits exceed the balance, the account can go negative, which is called an overdraft.
Worked Example
Problem: You have $750 in your bank account. You make three purchases: $45 for groceries, $60 for a jacket, and $25 for a book. What is your balance after all three debits?
Total debits: Add all three debit amounts together.
Subtract from balance: Subtract the total debits from the starting balance.
Answer: Your new balance is $620.
Why It Matters
Tracking debits is essential for managing a budget and avoiding overdraft fees. In personal finance courses and everyday banking, you need to subtract debits accurately to know how much money you actually have available to spend.
Common Mistakes
Mistake: Confusing debit with credit and adding instead of subtracting.
Correction: A debit removes money from your account (subtract), while a credit adds money (add). Always subtract debits from the balance.