Rules of Debit and Credit

Understand the rules of Debit and Credit and learn how to identify which account should be debited and which account should be credited in every business transaction.

📘 What are Debit and Credit?

Every business transaction has two aspects. One account receives the benefit and another account gives the benefit. Under the Double Entry System, both aspects are recorded by making a Debit entry and a Credit entry.

Therefore, for every transaction: Total Debit = Total Credit

⭐ Golden Rules of Debit and Credit

Traditionally, accounts are divided into three categories:

1. Personal Account
2. Real Account
3. Nominal Account

Type of Account	Golden Rule
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

👤 1. Personal Account

Personal Accounts are accounts relating to persons, firms, companies, institutions and other entities.

Rule:

• Debit the Receiver
• Credit the Giver

Example:
Cash paid to Ramesh ₹5,000.

Ramesh is the receiver, therefore Ramesh's Account is Debited.

🏠 2. Real Account

Real Accounts relate to assets and properties of the business. They include both tangible and intangible assets.

Rule:

• Debit what comes in
• Credit what goes out

Example:
Furniture purchased for cash ₹20,000.

Furniture comes into the business, therefore Furniture Account is Debited.
Cash goes out, therefore Cash Account is Credited.

💰 3. Nominal Account

Nominal Accounts relate to expenses, losses, incomes and gains. They are mainly used for determining the profit or loss of the business.

Rule:

• Debit all Expenses and Losses
• Credit all Incomes and Gains

Example:
Salary paid ₹15,000.

Salary is an expense, therefore Salary Account is Debited.
Cash goes out, therefore Cash Account is Credited.

📊 Modern Rules of Debit and Credit

In the modern approach, accounts are generally classified as Assets, Liabilities, Capital, Revenue and Expenses.

Account	Debit When	Credit When
Assets	Asset increases	Asset decreases
Liabilities	Liability decreases	Liability increases
Capital	Capital decreases	Capital increases
Revenue / Income	Revenue decreases	Revenue increases
Expenses / Losses	Expense increases	Expense decreases

🧠 Quick Revision

Account	Debit	Credit
Asset	Increase	Decrease
Liability	Decrease	Increase
Capital	Decrease	Increase
Income	Decrease	Increase
Expense	Increase	Decrease

Remember: Debit and Credit do not simply mean "increase" and "decrease". The effect depends upon the type of account.

📝 Important Exam Points

• Every transaction has two aspects.
• Total Debit must always be equal to Total Credit.
• Personal Account follows: Debit the Receiver, Credit the Giver.
• Real Account follows: Debit what comes in, Credit what goes out.
• Nominal Account follows: Debit all Expenses and Losses, Credit all Incomes and Gains.
• Expenses and losses normally have debit balances.
• Income and gains normally have credit balances.

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