Debit Credit Rules

In financial accounting debit and credit are simply the left and right side of a T-Account respectively. They are used to indicate the increase or decrease in certain accounts. When there is a change in an account, that change is indicated by either debiting or crediting that account according to following rules:

  • Assets and Expenses
    An increase is recorded as debit (left side)
    A decrease is recorded as credit (right side)
  • Liabilities, Equities and Revenues
    A decrease is recorded as debit (left side)
    An increase is recorded as credit (right side)
  • Contra-accounts
    Contra-accounts behave exactly in opposite way to the respective normal accounts.

Examples

  1. The owner brings cash from his personal account into the business
    Analysis:
    Cash (an asset) is increased thus debit Cash
    Owner capital (an equity) is increased thus credit Owners' Capital
  2. Office supplies are purchased on account
    Analysis:
    Office Supplies (an asset) is increased thus debit Office Supplies
    Accounts Payable (a liability) is increased thus credit Accounts Payable
  3. Wages payable are paid
    Analysis:
    Wages Payable (a liability) is decreased thus debit Wages Payable
    Cash (an asset) is decreased thus credit Cash
  4. Revenue is earned but not yet received
    Analysis:
    Accounts Receivable (an asset) is increased thus debit Accounts Receivable
    Revenue (a revenue) is increased thus credit Revenue

by Irfanullah Jan, ACCA and last modified on

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