What are the Rules of Debit and Credit? | Accounting 101

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Rules of Debit and Credit

Debit and credit are accounting principles used to record business transactions in books and ledgers.

All Accounting transactions are divided into five heads known Assets, Expenses, Liabilities, Income, & Equity. Each transaction has a unique treatment according to its respective head. Assets and Expenses are recorded in debit when increased and credit when decreased. While Liabilities, revenues, and Equity are recorded in Credit when increased and debit when decreased. See the table below for debit and credit rules for each head of accounts.

Debit and Credit chart

As discussed above every accounting head has a unique treatment for recording transactions. This rule is used in the double-entry bookkeeping system. it ensures that books of accounts are balanced as total debits and total credits must be equal to each other.

What is a Debit?

Debit is a record appearing on the left side of the books of accounts. Debit is increased with Assets and Expenses, and decreased with Revenue, Liabilities, and Equity. For example, if a business buys furniture by paying in cash. This transaction will debit furniture and cash will be credited because one asset(Furniture) is increasing while the other asset(Cash) is decreasing.

What is Credit?

Credit is a record appearing on the right side of the books of accounts. Credit is increased with Liabilities, Revenues, and Equity, and decreased with Assets and Expenses. For example if a business purchases Merchandise on the account. This transaction will debit Merchandise(Current-Asset) and Accounts Payable(Liability) will be credited because Asset(Merchandise) is increasing while the Liability(Account Payable) is also increasing.

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