Debit & Credit
1. Definition
In accounting, these terms simply denote the side of the ledger. * Debit (Dr.): The Left side. * Credit (Cr.): The Right side. * There is no inherent meaning of "good" or "bad." It purely depends on which account is being affected.
2. The Accounting Equation
To understand where to record transactions, you must follow the fundamental equation: $$ Assets = Liabilities + Equity$$
3. The Rules (T-Account)
| Account Type | Debit (Left) | Credit (Right) |
|---|---|---|
| Assets | Increase (+) | Decrease (-) |
| Liabilities | Decrease (-) | Increase (+) |
| Equity | Decrease (-) | Increase (+) |
| Income (Revenue) | Decrease (-) | Increase (+) |
| Expenses | Increase (+) | Decrease (-) |
- Mnemonic (DEALER):
- Dividends, Expenses, Assets $\rightarrow$ Increase on the Left (Debit).
- Liabilities, Equity, Revenue $\rightarrow$ Increase on the Right (Credit).
4. Why Balance?
Double-Entry Bookkeeping requires that for every transaction: $$Total\ Debits = Total\ Credits$$ * If you buy a machine (Asset Up $\rightarrow$ Debit) using Cash (Asset Down $\rightarrow$ Credit), the equation stays balanced. * If you borrow money (Asset Up $\rightarrow$ Debit) from a bank (Liability Up $\rightarrow$ Credit), the equation expands but remains balanced.