Financial Internal Controls Every UAE Business Needs
Namrata12 Nov 2026
| Quick fact: all accounting entries have a debit and a credit side and the two sides must be equal. So a UAE business with a debit of AED 10,000 will have a credit of AED 10,000 somewhere in its accounts. |
Your bank will have sent you a message saying that AED 5k has been credited to your account.
Good news. Cash received.
But if your accountant records that same amount in the company’s books it would be a debit.
Confusing. Right? –
This is because banks and businesses record things from different points of view. To a bank a customer's deposit is a liability. To a business money in a bank account is an asset.
For businesses in the UAE that are making payments to their suppliers on a day to day basis and processing their VAT transactions and expenses on a day to day basis, knowing what the debit and credit entries are is the key to keeping your books in order.
Takeaway
A debit and a credit entry show what happens when money moves from one business account to another. Every transaction will involve at least two accounts and will have to balance on both sides. They are used by UAE businesses to record purchases, payments, expenses and VAT correctly.
What are debit and credit transactions?
Every financial transaction has an impact on at least two accounts.
Suppose, a Dubai based trading company purchased office furniture from its bank account for AED 8,000.
The furniture account is increased by AED 8,000 and the bank balance is reduced by the same amount.
The accountant jots down:
- Debit to Furniture Account - 8,000 AED
- Credit: Bank Account - AED 8,000
The two entries are balanced.
The Importance of Double Entry Accounting
| Key fact: Double entry bookkeeping recognises the two sided effect of a transaction and keeps the accounting equation in balance. |
The fundamental accounting equation is:
Assets = Liabilities + Owner’s Equity
- Assets are inventory, equipment and cash.
- Liabilities are amounts owed by the business to its suppliers, lenders and so on.
- Equity is the owner's interest in the business.
When a business takes out a loan of AED 20,000 its bank balance will go up, its loan liability will also go up.
The two sides of the equation increase by the same amount.
The Main Differences: Debit vs Credit
| Note: Debit and credit refer to the account classification rather than the effect on the statement of financial position. |
| Basis | Debit (Dr) | Credit (Cr) |
| Position | Left side | Right side |
| Assets | Increases | Decreases |
| Liabilities | Decreases | Increases |
| Equity | Decreases | Increases |
| Expenses | Increases | Decreases |
| Example | Cash received | Sales revenue earned |
Rules of Debit & Credit
The Three Golden Rules
- Personal Account : Debit to the Receiver, Credit to the Giver
Personal accounts are those of individuals, companies and organisations.
For example, the company has paid the supplier AED 3,000 to clear the supplier's outstanding balance. The supplier's account would be debited and the bank account would be credited.
- Real Account: Debit all receipts and credit all payments
Real accounts are assets in the classical sense.
When the equipment is received the equipment account is debited. When the cash is then paid out to pay for it the cash account is credited.
- Nominal Account: Debit Incomes and Gains, Credit Expenses and Losses
Business income and business expenses are nominal accounts.
Office rent is an expense so it's debited. Service revenue is recognised as revenue.
Modern accounting groups accounts into assets, liabilities, equity, revenue and expenses.
A simple way to remember the rules is DEAD and CLIC.
- DEAD: Debits increase Expenses, Assets and Drawings.
- CLIC: Credits increase Liabilities, Income and Capital.
Entries on the other side invariably reduce these balances.
Examples of Debit and Credit Entries in Practice
| Quick fact: It's a lot easier to record the journal entries if you can work out what the business is receiving, what it's giving up and which accounts are involved. |
Example 1: Owner puts cash into business
The owner of the business puts AED 50,000 into the company's bank account.
| Account | Debit (AED) | Credit (AED) |
| Bank Account | 50,000 | — |
| Capital Account | — | 50,000 |
| Total | 50,000 | 50,000 |
The bank’s assets and the owner’s equity both go up.
Example 2: Buying Equipment for Cash
A company buys computers for 12,000 AED and pays cash.
| Account | Debit (AED) | Credit (AED) |
| Equipment Account | 12,000 | — |
| Bank Account | — | 12,000 |
| Total | 12,000 | 12,000 |
Example 3: Purchase of Goods on Credit
| Account | Debit (AED) | Credit (AED) |
| Inventory Account | 15,000 | — |
| Accounts Payable | — | 15,000 |
| Total | 15,000 | 15,000 |
The business has more stock now but is still in arrears with its supplier by AED 15,000.
Example 4: Monthly rent payment
A company pays 6,000 dirhams a month for office rent.
| Account | Debit (AED) | Credit (AED) |
| Rent Expense | 6,000 | — |
| Bank Account | — | 6,000 |
| Total | 6,000 | 6,000 |
Example 5: Receipt of Payment from Customer
A customer has settled an outstanding invoice of AED 9,000 via bank transfer.
| Account | Debit (AED) | Credit (AED) |
| Bank Account | 9,000 | — |
| Accounts Receivable | — | 9,000 |
| Total | 9,000 | 9,000 |
The cash goes up and the amount the customer is owed goes down. No further revenue is recognised as it was already recognised on the date of the original sale.
Step by Step Instructions to Make Debit and Credit Entries
| Practical tip: Work out which accounts are involved in the transaction before you record it and how the balance of each one will be affected. |
- Identify the accounts. Which accounts are involved in the transaction?
- Identify each account as an asset, liability, equity, income or expense.
- Apply the debit and credit rules. Find out which account is increased or decreased.
- Add up both sides. Debits must equal credits.
- Log the journal entry. Enter the transaction date, the account names, the amounts and the description
Accounting software can do the posting automatically, but the rules remain the same.
Typical Debit and Credit Mistakes to Avoid
| Warning: A balance of debit and credit totals does not mean that the transaction has been correctly recorded. |
- Assuming debit always means a decrease. A debit increases expenses and assets. The effect is different depending on the account.
- Banking jargon is very confusing. When you put money into the bank they make a liability. That's why the credit you get from the bank is not the same as credit in your business accounts.
- If the amounts are missing or wrong the journal entries won't balance.
- Another mistake is recording the purchase of recording equipment as a normal operating expense.
UAE businesses should also exclude the relevant VAT amounts from the transaction values when making their accounting entries.
Conclusion
It's easier to do the debit and credit entries if you stop thinking of them as simply money going in and out of a bank account.
The question is which accounts are changing and why?
Accuracy of those entries for UAE businesses is what underpins the reliability of the financial statements, the ability to reconcile with suppliers and the ability to report VAT correctly. The account management software will do the daily processing of the transactions, but having an understanding of the rules enables the finance team to spot errors prior to them affecting the financial statements.
FAQs
- Can there be more than one debit or credit in a transaction?
Yes. One transaction can involve more than one account. For instance, a business in the UAE buying goods subject to 5% VAT could debit both the inventory and the input VAT accounts and credit the supplier account. The key point is that the total of the debits must be equal to the total of the credits.
- What if the debit and credit entries don't balance?
Your accounts won't balance. That could be down to someone having entered the wrong amount, omitted an account or only posted one side of a transaction. Accounting software will normally pick up on these sorts of errors. Even if the accounts do balance however they could still be wrong if the wrong accounts have been used.
- In a business, is a debit always an expense?
No, that's a very common mistake. A debit can represent either an increase in an asset or an expense, or a decrease in a liability or equity. So if you buy machinery for AED 20,000 the machinery asset account will be debited by that amount. It won't automatically be an expense on the profit and loss account.
