If you are studying accounting or running a business, you need to understand the difference between debit and credit in accounting. In this blog post, we will explain the basic concepts, rules, and examples of debit and credit in accounting, and help you master this essential skill.
What are Debit and Credit in Accounting?
Debit and credit are two terms that are used to record transactions in accounting. They are based on the double-entry accounting system, which means that every transaction affects two accounts: one account is debited and another account is credited.
Debit and credit are not the same as debit and credit cards. They do not mean positive or negative, or increase or decrease. They simply indicate the position of an account on the balance sheet: debit is on the left side and credit is on the right side.
What are the Rules of Debit and Credit in Accounting?
The rules of debit and credit in accounting depend on the type of account that is involved in the transaction. There are five main types of accounts in accounting: assets, liabilities, equity, revenues, and expenses.
The rules of debit and credit for each type of account are summarized in the table below:
| Type of Account | Debit | Credit |
| Assets | Increase | Decrease |
| Liabilities | Decrease | Increase |
| Equity | Decrease | Increase |
| Revenues | Decrease | Increase |
| Expenses | Increase | Decrease |
To remember these rules, you can use the acronym DEALER, which stands for Debit Expenses, Assets, and Liabilities; Credit Equity and Revenues.
What are Some Examples of Debit and Credit in Accounting?
To illustrate how debit and credit work in accounting, let’s look at some examples of common transactions and how they are recorded using the double-entry accounting system.
- Example 1: A company buys a machine for $10,000 in cash. This transaction affects two accounts: cash (an asset) and machine (also an asset). According to the rules of debit and credit, assets increase with debit and decrease with credit. Therefore, the journal entry for this transaction is:
| Account | Debit | Credit |
| Machine | $10,000 | |
| Cash | $10,000 |
- Example 2: A company sells goods for $5,000 on credit. This transaction affects two accounts: accounts receivable (an asset) and sales revenue (a revenue). According to the rules of debit and credit, assets increase with debit and revenues increase with credit. Therefore, the journal entry for this transaction is:
| Account | Debit | Credit |
| Accounts Receivable | $5,000 | |
| Sales Revenue | $5,000 |
- Example 3: A company pays salaries to its employees for $3,000 in cash. This transaction affects two accounts: cash (an asset) and salaries expense (an expense). According to the rules of debit and credit, assets decrease with credit and expenses increase with debit. Therefore, the journal entry for this transaction is:
| Account | Debit | Credit |
| Salaries Expense | $3,000 | |
| Cash | $3,000 |
I hope this blog post helped you understand the difference between debit and credit in accounting. If you have any questions or feedback, please leave a comment below. Thank you for reading! 😊
