Accounting – Rules of Debit and Credit in Accounts
Debit and credit are fundamental concepts in accounting and form the basis of the double-entry bookkeeping system. Understanding these rules is crucial for accurate financial record-keeping. Let’s explore the key principles and applications of debits and credits in various account types.
The Basic Principles of Debit, Credit, and Balance
A debit increases asset and expense accounts and decreases liability, equity, and revenue accounts.
A credit increases liability, equity, and revenue accounts and decreases asset and expense accounts.
Balance – Total debits must always equal total credits to ensure the accounting equation stays balanced.
Account Types and Their Normal Balances
Assets are debits in accounting, liabilities are credits, owner’s equity is also a credit, and revenue is a credit. Expenses are debits in accounting.
Applying the Rules
1. Identify the accounts – Determine which accounts are affected by the transaction.
2. Classify the accounts – Categorize each account as an asset, liability, equity, revenue, or expense.
3. Apply the rules – Use the debit and credit rules for each account type.
4. Record the entry – Enter the debits and credits in the appropriate accounts.