Rules of Debit and Credit: which side, and why
- Explain what debit and credit mean using the T-account
- Classify any account as asset, liability, capital, expense/loss or revenue/gain
- Apply the rules of debit and credit (accounting equation approach) to any transaction
- Use the traditional golden rules for personal, real and nominal accounts as a quick cross-check
This is the most important lesson of the whole book. If you understand today's rules, the journal, ledger, cash book, trial balance — everything after this — is just practice. Most students fail here only because somebody told them "debit means money coming in" or "credit means good". Forget all of that. Today you will see that debit simply means left side and credit simply means right side, and that the rule for which side to use comes straight from the accounting equation you learnt in the last lesson. By the end you will be able to decide the debit and credit for any transaction in about ten seconds.
1. The T-account: left side and right side
Every item in the business (cash, furniture, a supplier, rent) gets its own record called an account. In its simplest form an account looks like the capital letter T: the title at the top, a left side and a right side.
| Cash Account | |
|---|---|
| Left side = Debit (Dr.) | Right side = Credit (Cr.) |
| Amounts entered here are "debited" | Amounts entered here are "credited" |
Debit (Dr.) means entering an amount on the left side of an account. Credit (Cr.) means entering an amount on the right side. The words themselves do not mean increase, decrease, good or bad.
Why two sides? So that increases can be written on one side and decreases on the other. At any time, the difference between the two sides (the balance) tells us where that item stands. For example, in a customer's account, goods sold to him go on the debit side and money received from him goes on the credit side; the difference is what he still owes.
Rajani Enterprises (a customer) bought goods on credit for ₹35,000 and later ₹12,000. It paid ₹30,000. How much does Rajani Enterprises still owe?
2. Five kinds of accounts
For recording, every account belongs to one of five groups. Learn to put an account into its group first; the rule follows automatically.
| Group | Meaning | Examples |
|---|---|---|
| Assets | Things the business owns or amounts others owe it | Cash, Bank, Furniture, Machinery, Building, Stock, Debtors (customers), Prepaid rent |
| Liabilities | Amounts the business owes to outsiders | Creditors (suppliers), Bank loan, Outstanding salary |
| Capital | The owner's claim | Capital; Drawings (reduces capital) |
| Expenses / Losses | Costs used up to earn revenue, and losses | Purchases of goods, Rent, Salaries, Wages, Electricity, Discount allowed, Loss by fire |
| Revenues / Gains | Income earned from business activities, and gains | Sales, Commission received, Interest received, Rent received, Discount received |
Notice that Purchases is treated as an expense account and Sales as a revenue account. In the books, goods are not kept in one "Goods Account". The goods account is split into Purchases, Sales, Purchases Return, Sales Return and Stock accounts. So when you buy goods, you debit Purchases A/c, never "Goods A/c".
3. The rules of debit and credit
Here are the rules as NCERT gives them. There are only two groups to remember.
Rule 1 — Assets and Expenses/Losses:
Increase is debited; decrease is credited.
Rule 2 — Liabilities, Capital and Revenues/Gains:
Increase is credited; decrease is debited.
| Type of account | Increase (+) | Decrease (−) |
|---|---|---|
| Asset | Debit | Credit |
| Expense / Loss | Debit | Credit |
| Liability | Credit | Debit |
| Capital | Credit | Debit |
| Revenue / Gain | Credit | Debit |
3.1 Why these rules? (They come from A = L + C)
Look at the equation: Assets sit on the left; Liabilities and Capital sit on the right.
- Assets are on the left of the equation, so they increase on the left (debit) side of their account.
- Liabilities and capital are on the right of the equation, so they increase on the right (credit) side.
- Revenues increase capital, so they behave like capital: increase = credit.
- Expenses and losses reduce capital. A decrease in capital is a debit, so an increase in expense = debit.
- Drawings also reduce capital, so drawings are debited.
Because every transaction has equal effects on both sides of the equation, total debits always equal total credits. That is the whole idea of double entry.
"A-E on the left, L-C-R on the right." Assets and Expenses grow on the left (Dr.). Liabilities, Capital and Revenues grow on the right (Cr.). A decrease always goes to the opposite side.
"Debit means increase" is wrong. Debit increases assets and expenses, but it decreases liabilities, capital and revenues. Paying a creditor debits the creditor's account because the liability goes down. Always ask: which group, and up or down?
4. The four-step method
For every transaction, go through these four steps. With practice they become automatic.
- Which accounts are affected? (At least two.)
- Which group does each belong to? (Asset, liability, capital, expense, revenue.)
- Is each one increasing or decreasing?
- Apply the rule → debit or credit. Check that debits = credits.
(a) Kavya started the business with cash ₹3,00,000.
(b) Deposited ₹2,00,000 into the bank.
(c) Bought phones on credit from Galaxy Distributors ₹90,000.
(d) Sold phones for ₹42,000 cash.
- (a) Cash (asset) ↑ → Debit Cash. Capital ↑ → Credit Capital.
- (b) Bank (asset) ↑ → Debit Bank. Cash (asset) ↓ → Credit Cash.
- (c) Purchases (expense) ↑ → Debit Purchases. Galaxy Distributors (liability, creditor) ↑ → Credit Galaxy Distributors.
- (d) Cash (asset) ↑ → Debit Cash. Sales (revenue) ↑ → Credit Sales.
In Lesson 2 we showed the sale in (d) as "stock down at cost, capital up by profit" to understand the equation. In actual books we simply credit Sales A/c with the full selling price. The profit is worked out at the end of the year when the trading account is prepared. Do not credit Stock A/c or Capital A/c for a sale.
4.1 The whole month at a glance
| Transaction (₹) | Accounts and group | Effect | Debit | Credit |
|---|---|---|---|---|
| Started business with cash 3,00,000 | Cash (asset); Capital | ↑ ; ↑ | Cash | Capital |
| Deposited in bank 2,00,000 | Bank (asset); Cash (asset) | ↑ ; ↓ | Bank | Cash |
| Furniture bought by UPI 40,000 | Furniture (asset); Bank (asset) | ↑ ; ↓ | Furniture | Bank |
| Goods bought on credit from Galaxy 90,000 | Purchases (expense); Galaxy (liability) | ↑ ; ↑ | Purchases | Galaxy Distributors |
| Goods sold for cash 42,000 | Cash (asset); Sales (revenue) | ↑ ; ↑ | Cash | Sales |
| Goods sold to Rohan on credit 26,000 | Rohan (asset, debtor); Sales (revenue) | ↑ ; ↑ | Rohan | Sales |
| Paid Galaxy by cheque 50,000 | Galaxy (liability); Bank (asset) | ↓ ; ↓ | Galaxy Distributors | Bank |
| Paid rent in cash 8,000 | Rent (expense); Cash (asset) | ↑ ; ↓ | Rent | Cash |
| Withdrew cash for personal use 5,000 | Drawings (reduces capital); Cash (asset) | ↑ ; ↓ | Drawings | Cash |
| Rohan paid by UPI 16,000 | Bank (asset); Rohan (asset, debtor) | ↑ ; ↓ | Bank | Rohan |
Now collect every cash item into the Cash Account. Debits (increases) go on the left and credits (decreases) on the right:
| Date | Particulars | J.F. | ₹ | Date | Particulars | J.F. | ₹ |
|---|---|---|---|---|---|---|---|
| Apr 1 | To Capital A/c | 3,00,000 | Apr 2 | By Bank A/c | 2,00,000 | ||
| Apr 10 | To Sales A/c | 42,000 | Apr 25 | By Rent A/c | 8,000 | ||
| Apr 28 | By Drawings A/c | 5,000 |
From the Cash Account above, how much cash does Kavya's shop have on 30 April 2026?
5. Practise: pick the debit and the credit
Apr 25, 2026: Paid shop rent ₹8,000 in cash.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 25 | Rent A/c Dr. | 8,000 | ||
| To Cash A/c | 8,000 | |||
| (Being shop rent paid in cash) |
Apr 6, 2026: Bought mobile phones for resale from Galaxy Distributors on credit, ₹90,000.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 6 | Purchases A/c Dr. | 90,000 | ||
| To Galaxy Distributors A/c | 90,000 | |||
| (Being goods purchased on credit) |
Apr 28, 2026: Kavya withdrew ₹5,000 cash from the shop for household use.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 28 | Drawings A/c Dr. | 5,000 | ||
| To Cash A/c | 5,000 | |||
| (Being cash withdrawn for personal use) |
Apr 12, 2026: Bought a machine for ₹60,000 from Singh Engineering; paid ₹10,000 in cash and the balance is still payable.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 12 | Machinery A/c Dr. | 60,000 | ||
| To Cash A/c | 10,000 | |||
| To Singh Engineering A/c | 50,000 | |||
| (Being machine purchased, part payment made in cash) |
6. The traditional approach: the golden rules
Before the accounting-equation approach became standard, accountants used a different classification. Many teachers, Tally users and older books still use it, and it makes a very good cross-check. Accounts are divided into three types:
| Type | What it covers | Examples |
|---|---|---|
| Personal account | Persons and organisations: natural (people), artificial (firms, banks, companies, schools) and representative (accounts standing for a person, like outstanding or prepaid items) | Rohan A/c, Galaxy Distributors A/c, Bank A/c, Capital A/c, Drawings A/c, Outstanding Salary A/c, Prepaid Rent A/c |
| Real account | Things (property) — tangible or intangible | Cash, Furniture, Machinery, Building, Stock, Goodwill, Patents |
| Nominal account | Expenses, losses, incomes and gains | Rent, Salaries, Purchases, Sales, Commission Received, Discount Allowed |
Golden rules
Personal account: Debit the receiver, credit the giver.
Real account: Debit what comes in, credit what goes out.
Nominal account: Debit all expenses and losses, credit all incomes and gains.
(a) Paid Galaxy Distributors ₹50,000 by cheque.
(b) Received commission ₹3,000 by UPI into the bank.
- (a) Galaxy (personal) receives money → debit Galaxy. Bank (personal, artificial) gives the money → credit Bank.
- Modern check: Galaxy is a liability going down → debit; Bank is an asset going down → credit. Same answer.
- (b) Bank (personal) receives → debit Bank. Commission received is an income (nominal) → credit Commission Received.
- Modern check: Bank asset ↑ → debit; revenue ↑ → credit. Same answer.
Apr 22, 2026: Received commission ₹3,000 through UPI directly into the bank account.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 22 | Bank A/c Dr. | 3,000 | ||
| To Commission Received A/c | 3,000 | |||
| (Being commission received through UPI) |
NCERT (CBSE) follows the accounting equation approach, so in exams give reasons in those words: "Increase in asset is debited", "Increase in expense is debited", "Increase in liability is credited". Use the golden rules only to double-check your answer. Both approaches always give the same debit and credit.
Salary of ₹12,000 for March is still unpaid on 31 March. Under the accounting equation approach, which group does the "Outstanding Salary" account belong to?
- A credit, because liabilities are credited
- A debit, because liabilities are always debited
- A debit, because an increase in liability is credited and a decrease is debited
- Neither debit nor credit
- Drawings reduce capital, and a decrease in capital is debited
- Drawings are an expense of the business
- Drawings increase the assets of the business
- Drawings are a liability of the business
Board tip: Questions like "Does debit always mean increase?" (1–3 marks) want: "No. Debit increases assets and expenses but decreases liabilities, capital and revenues", with one example of each. When asked to "analyse the transaction", write the group, the change and the rule in one line for each account, as in the table in 4.1.
📌 Points to remember (Quick Revision)
- Debit means the left side of an account and credit means the right side; neither word means "increase" by itself.
- Five groups: assets, liabilities, capital, expenses/losses, revenues/gains.
- Assets and expenses: increase = debit, decrease = credit. Liabilities, capital and revenues: increase = credit, decrease = debit.
- The rules come from A = L + C; drawings and expenses reduce capital so they are debited. Total debits always equal total credits.
- Goods bought for resale: debit Purchases A/c; goods sold: credit Sales A/c at the selling price.
- Golden rules (cross-check): Personal — debit the receiver, credit the giver; Real — debit what comes in, credit what goes out; Nominal — debit expenses and losses, credit incomes and gains.
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