Basic Rules of Debits and Credits

Basic Rules of Debits and Credits 

By: Dr. John E. Ware. I

Hey Kids,

Debits and credits are essential principles of accounting that define the relationship between assets, liabilities, income, and expenses. They are used to record accounting transactions in the journal which are then transferred to the general ledger. This blog post will go over the basic rules of debits and credits and how they can be used in everyday accounting for businesses.

The basic rule of debits and credits is that whenever there is a transaction, the total of the debit entries must equal the total of the credit entries. A debit entry increases the balance of an asset or expense account and decreases the balance of a liability, revenue, or equity account. Conversely, a credit entry increases the balance of a liability, revenue, or equity account and decreases the balance of an asset or expense account. 

The most important thing to remember is that when debiting an account, the increase always appears on the left side of the accounting ledger, and when crediting an account, the increase always appears on the right side of the ledger. 

Businesses use debits and credits to track different transactions and keep their books in order. For example, when a company pays an invoice, it would credit its cash account (decrease assets) and debit its accounts payable account (decrease liabilities).