Debit and Credit Rules Made Simple
Debit and credit are the two sides of every accounting entry. The simplest modern rule to remember: debit increases assets and expenses, and credit increases liabilities, capital and income. In every transaction, total debits equal total credits, which is what keeps the books balanced. Debit and credit confuse beginners because they don't mean "good" or "bad", they just mean the left side and the right side of an entry.
Debit and credit are just left and right
- Debit (Dr) is the left side of an account.
- Credit (Cr) is the right side.
They don't mean money in or money out on their own. Whether a debit increases or decreases something depends on the type of account, which is what the rules below tell you.
The modern rule (by account type)
Group every account into five types, and apply this:
| Account type | Debit does | Credit does |
|---|---|---|
| Assets (cash, stock, furniture) | Increase ↑ | Decrease ↓ |
| Expenses (rent, salary) | Increase ↑ | Decrease ↓ |
| Liabilities (loans, creditors) | Decrease ↓ | Increase ↑ |
| Capital (owner's money) | Decrease ↓ | Increase ↑ |
| Income (sales, interest) | Decrease ↓ | Increase ↑ |
So: to increase an asset or expense, you debit it. To increase a liability, capital or income, you credit it.
A memory trick: DEAL and CLIP
- DEAL — Debits increase Expenses, Assets, Losses.
- CLIP — Credits increase Liabilities, Income, (Capital), Profits.
If you're increasing something in DEAL, debit it. If you're increasing something in CLIP, credit it.
Every entry balances
For each transaction, the total debits must equal the total credits. If you pay ₹5,000 rent by cash:
- Rent (expense) increases → debit Rent ₹5,000.
- Cash (asset) decreases → credit Cash ₹5,000.
Debit ₹5,000 = Credit ₹5,000. Balanced.
Worked examples
- Bought goods for ₹20,000 cash: Purchases (expense) ↑ debit; Cash (asset) ↓ credit.
- Made a cash sale of ₹15,000: Cash (asset) ↑ debit; Sales (income) ↑ credit.
- Took a loan of ₹50,000: Cash (asset) ↑ debit; Loan (liability) ↑ credit.
- Owner invested ₹1,00,000: Cash (asset) ↑ debit; Capital ↑ credit.
Notice that in each, one debit and one credit, always equal.
Pro tips
- Ask two questions: which accounts are affected, and is each going up or down? Then apply the rule.
- Cash coming in is debited; cash going out is credited. This one fact covers many entries.
- Use DEAL/CLIP until the rules become automatic.
Common mistakes
- Thinking debit = money out. Debit just means the left side; for assets, a debit is an increase.
- Unequal sides. If debits don't equal credits, an entry is wrong. Recheck.
- Misclassifying the account. Treating rent (expense) as an asset flips the entry. Identify the type first.
Key takeaways
- Debit is the left side, credit is the right side; neither means good or bad.
- Debit increases assets and expenses; credit increases liabilities, capital and income.
- Use DEAL and CLIP to remember which side increases what.
- Every transaction has equal total debits and credits.
Practice task
Write debit/credit for these: (1) paid ₹3,000 electricity by cash, (2) received ₹8,000 from a customer, (3) bought furniture ₹12,000 by cash. Name the account type and whether it goes up or down for each side.
Master debit, credit and the full accounting cycle in the ADFA program at HCI.
Frequently Asked Questions
What is debit and credit in accounting?
Debit is the left side of an account and credit is the right side. They record the two sides of every transaction, and total debits always equal total credits.
What is the simple rule for debit and credit?
Debit increases assets and expenses; credit increases liabilities, capital and income. To increase an asset or expense, debit it; to increase income or a liability, credit it.
Does debit mean money going out?
Not necessarily. Debit just means the left side. For an asset like cash, a debit actually means an increase (money coming in).
What is the DEAL and CLIP trick?
DEAL: debits increase Expenses, Assets, Losses. CLIP: credits increase Liabilities, Income, Capital, Profits. It helps you remember which side increases what.
Why must debits equal credits?
Because accounting is double-entry: every transaction affects two accounts with equal amounts, keeping the books balanced under Assets = Liabilities + Capital.