WHAT ARE THE RULES OF DEBIT AND CREDIT IN ACCOUNTING?

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Being the diligent accounting student that you are, your mind would have been ingrained with the idea of debit and credit. If not, I will strongly that recommend you read this post.

A debit is an entry at the left-hand side of an account. Credit, on the other hand, is an entry at the right-hand side of the account.

There are five major accounts, viz: Assets, liability, revenue, capital and Expenses.

The basic rules of debit and credit are as follows:

1. Debit asset account if it is increasing and credit it if it is decreasing.

2. Debit expense account if it is increasing and credit it if it is decreasing.

3. Credit liability account if it is increasing and credit it if it is increasing.

4. Credit revenue account if it is increasing and credit it if it is increasing.

5. Credit capital account if it is increasing and credit it if it is increasing.

To better appreciate this rule, let take some examples

1. John brought in $600 to his business

The two accounts affected here are the capital account and the cash account. Since john brought in $600 to the business, Cash (an asset) will increase and therefore is debited.

In the same way, the capital of the business has increased by $600, therefore it is credited as per the rule given above.   

Dr: Cash account

Cr: Capital account

2. Bought goods worth $50 dollars with cash

Because goods were bought, Purchases account will increase. However, the cash account will decrease because $50 was paid. Hence, cash decreases.

Because Purchase is an expense account, it is debited while cash is credited because it is an asset.

Dr: purchase account

Cr: Cash account

3. Sold goods worth $20 in credit

Since we sold goods, our sales increase. But, this sale was made on credit. So, our debtor or trade receivable account has also increased.

Because sales is a revenue account, we will therefore credit it. Debtor account will also be debited because it is an asset.

Dr: debtor account

Cr: sales account

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