![]() Rules for Income or Revenue AccountsĪn income or revenue results in an increase in capital. Usually, but not always, no entries are made on the credit side of the accounts kept for expenses. Hence, when salaries is paid to workers, we make an entry on the debit side of the salaries account. Since a reduction in capital is recorded on the debit side of an account, all expenses are also recorded on the debit side of the relevant account. Rules for Expense AccountsĪn expense is a loss and therefore results in a reduction in capital. Notice that the rules of debit and credit for asset accounts are exactly the opposite of the rules of debit and credit for liability and capital accounts. If he takes any money or goods from the business for his personal use, that will reduce his capital and therefore an entry will be made on the debit side of his account. If he introduces any additional capital, an entry will be made on the credit side of his capital account. John on the first day of the accounting period will be shown on the credit side of John’s Capital Account. ![]() ![]() Any decrease is recorded on the debit side of the respective capital account.įor example, the amount of capital of Mr. Any increase is also recorded on the credit side. Rules for Capital AccountsĬapital is recorded on the credit side of an account. If an amount is paid to United Traders (thereby reducing the liability to United Traders), an entry is made on the debit side of United Traders Account. If more goods are bought from United Traders (thereby incurring an additional liability to United Traders), an entry would be made on the credit side of United Traders Account. Any increase in liability is recorded on the credit side and any decrease is recorded on the debit side of a liability account.įor example, the amount payable to United Traders on the first day of the accounting period is recorded on the credit side of the United Traders Account. Liabilities are recorded on the credit side of the liability accounts. Whenever an amount of cash is paid out, an entry is made on the credit side of the cash in hand account. Whenever an amount of cash is received, an entry is made on the debit side of the cash in hand account. Any increase to an asset is recorded on the debit side and any decrease is recorded on the credit side of its account.įor example, the amount of cash in hand on the first day of the accounting period is recorded on the debit side of the cash in hand account. Rules for Asset AccountsĪssets are recorded on the debit side of the account. The following rules of debit and credit are applied to record these increases or decreases in individual ledger accounts. Rules of Debit and Creditĭebit and credit are financial transactions that increase or decrease the values of various individual accounts in the ledger. They are also useful for the management in promoting effective decision-making. Today, accountants adopt practices like the use of these columns to keep records that are used on a long-term basis. Debit (Dr.) involves making an entry on the left side and Credit (Cr.) involves making an entry on the right side. In spite of all the discussion surrounding these terms, we can also say that they are the fundamental operators of accounting, which underpin the subject.ĭebit and credit represent two sides (columns) of an account (i.e., a Debit column and a Credit column). Similarly, the word "credit" has its historical roots in the Latin word credere, meaning "to believe." In accounting, this is often abbreviated as "Cr." Historically, the word "debit" derives from the Latin word debere, which means "to owe." In accounting, this has been shortened to "Dr." There is no standard definition for the terms debit and credit.
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