Rules of Debit and Credit

In order to record the journal entries, one must know the rules of debit and credit. First of all we should know the meaning of debit and credit. In journalizing, debit simply means the act of recording entry on left side of an account whereas credit means recording the entry on right side. Therefore left side is the debit side whereas right side is the credit side of any account. In case of double-entry bookkeeping, every transaction affects at least two accounts i.e. if one is debited other must be credited. Following are some of the important rules of debit and credit illustrated on the basis of nature of item or account.

Assets

• All those assets which are purchased by an organization are debited.
• All those assets which are sold by an organization are credited.

For example: Goods purchased for Rs. 2500.
                  Goods sold for Rs. 2000.

Note: In accounting, goods purchased are represented by purchases whereas goods sold are represented by sales.

Liabilities

• An increase in liabilities will be credited.
• Any decrease in liabilities will be debited.

For example: David purchased goods on credit for Rs. 3000
                  David paid for the purchase of goods on credit for Rs. 3000

Capital

• If there is increase in the capital then it will be credited.
• If there is decrease in the capital then it will be debited.

For example: Vikram started business with Rs. 50000
                  Vikram drawn Rs. 10000 from the business for personal use.