Rules of debit and credit

Debit means the left side of an account and credit means the right side. Nothing more. The rules only tell you which side an increase goes on.

What debit and credit mean

Every account has two sides. The left side is the debit side (Dr.) and the right side is the credit side (Cr.). To debit an account is to write an amount on its left; to credit it is to write on its right. Debit does not mean "good" or "increase", and credit does not mean "bad" or "decrease". Whether a debit increases or decreases an account depends on the kind of account.

Under the double entry system every transaction is recorded with equal debits and credits. This is why the books can be checked with a trial balance.

The modern (accounting equation) approach

Accounts are of five kinds. Learn one line for each.

Kind of account	Increase is	Decrease is	Normal balance
Assets (cash, stock, furniture, debtors)	Debit	Credit	Debit
Expenses and losses (rent, wages, bad debts)	Debit	Credit	Debit
Liabilities (creditors, loans, outstanding expenses)	Credit	Debit	Credit
Capital	Credit	Debit	Credit
Revenue and gains (sales, commission received)	Credit	Debit	Credit

A memory aid: assets and expenses sit on the left of the equation's logic and grow by debit; liabilities, capital and revenue sit on the right and grow by credit. Drawings reduce capital, so drawings are debited.

The traditional approach: three golden rules

Type of account	What it covers	Rule
Personal	Persons, firms, companies, banks; also outstanding and prepaid items	Debit the receiver, credit the giver
Real	Assets and things: cash, goods, furniture, building, goodwill	Debit what comes in, credit what goes out
Nominal	Expenses, losses, incomes and gains	Debit all expenses and losses, credit all incomes and gains

Both approaches give the same entry every time. Use whichever your board and teacher follow; it helps to know both.

How to analyse any transaction

Find the two (or more) accounts affected.
Decide the kind of each account.
Decide whether each has increased or decreased.
Apply the rule to get debit or credit.
Check that total debits equal total credits.

Fifteen transactions analysed

Transaction	Debit	Why	Credit	Why
Started business with cash	Cash A/c	Asset increases	Capital A/c	Capital increases
Deposited cash into bank	Bank A/c	Asset increases	Cash A/c	Asset decreases
Bought goods for cash	Purchases A/c	Expense increases	Cash A/c	Asset decreases
Bought goods on credit from Ravi	Purchases A/c	Expense increases	Ravi's A/c	Liability increases
Sold goods for cash	Cash A/c	Asset increases	Sales A/c	Revenue increases
Sold goods on credit to Sana	Sana's A/c	Asset (debtor) increases	Sales A/c	Revenue increases
Received cash from Sana	Cash A/c	Asset increases	Sana's A/c	Asset (debtor) decreases
Paid cash to Ravi	Ravi's A/c	Liability decreases	Cash A/c	Asset decreases
Paid rent by cheque	Rent A/c	Expense increases	Bank A/c	Asset decreases
Bought furniture for cash	Furniture A/c	Asset increases	Cash A/c	Asset decreases
Took a loan from the bank	Bank A/c	Asset increases	Bank Loan A/c	Liability increases
Withdrew cash for personal use	Drawings A/c	Capital decreases	Cash A/c	Asset decreases
Received commission	Cash A/c	Asset increases	Commission Received A/c	Revenue increases
Goods returned by Sana	Sales Return A/c	Revenue decreases	Sana's A/c	Asset (debtor) decreases
Salary due but not paid	Salaries A/c	Expense increases	Outstanding Salaries A/c	Liability increases

Points students often get wrong

Purchases, not Goods. Goods bought are debited to Purchases A/c and goods sold are credited to Sales A/c. There is no single "Goods account" in the journal.
Cash received from a debtor is not sales. The sale was recorded when goods were sold on credit. Receipt only reduces the debtor.
Bank is an asset. Money in the bank is debited when deposited. A bank loan is a separate liability account.
Drawings are not an expense. They are debited to Drawings A/c, not to an expense account.
Buying an asset is not Purchases. Furniture bought for use is debited to Furniture A/c.

Now put the rules to work in full journal entries, or test yourself in the practice quiz.

Questions students ask

Why is cash debited when it is received?

Cash is an asset, and an increase in an asset is a debit. By the golden rule for real accounts: debit what comes in.

Why are expenses debited?

An expense reduces the owner's capital. Since a decrease in capital is a debit, expenses are debited. By the golden rule for nominal accounts: debit all expenses and losses.

Is the modern approach or the golden rules better?

Both give the same answer. The modern approach has one logic for all accounts; the golden rules are quick to recall. Follow the one your syllabus uses and understand the other.