Rules of DEBIT & CREDIT

Rules of DEBIT & CREDIT

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:

Ø  Assets and Expenses
An increase is recorded as debit (left side)
A decrease is recorded as credit (right side) 

Ø  Liabilities, Equities and Revenues
A decrease is recorded as debit (left side)
An increase is recorded as credit (right side) 

Ø  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