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DEBITS & CREDITS

Explanation

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ACCOUNTING EQUATION

ASSETS = LIABILITIES

DEBITS AND CREDITS EQUATION IS A VARIATION OFTHE FULLY EXPANDED EQUATION.

ASSETS + DRAWING +EXPENSES=LIABILITIES+OWNERS EQUITY+REVENUE.

Therefore DEBITS = CREDITS.

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What is Debit?

A debit in accounting language is anentry made on the left side of the of ajournal or ledger that increases anasset, drawing or expense or an entrythat decreases a liability , ownersequity or revenue.

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What is Credit?

A credit in accounting language is anentry made on the right side of journalor ledger that increases a liability,owners equity or revenue or an entrythat decreases an asset , draw or anexpense.

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Debit/Credit Equation

Assets + Drawing + Expense =Liabilities +Owners Equity

+Revenue. All accounts that normally have a debit

balance are on the left side of theequation.

All accounts that normally have acredit balance are on the right side ofhe equation.

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Summarised Debit/Credit RuleTable

ACCOUNT TYPE DEBIT CREDIT NORMAL

ASSETS INCREASE DECREASE DEBIT

BALANCE

LIABILITIES DECREASE INCREASE CREDITBALANCE

OWNERS

EQUITY

DECREASE INCREASE CREDIT

BALANCE

REVENUE DECREASE INCREASE CREDIT

BALANCE

EXPENSE INCREASE DECREASE DEBIT

BALANCE

DRAWING INCREASE DECREASE DEBIT

BALANCE

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Normal Account Balances

Debit Balances:

Asset : Normally a debit balance.

Drawings :Normally a debit balance Expense : Normally a debit balance.

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Contd

Credit Balances :

Liabilities : Normally a credit balance

Owners Equity: Normally a creditbalance.

Revenue : Normally a credit balance.

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A debit increases an asset while acredit decreases an asset.

A debit decreases a liability while acredit increases a liability.

A debit decreases owners equity whilea credit increases owners equity.

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A debit decreases revenue while creditincreases revenue.

A debit increases an expense while acredit decreases an expense.

A debit increases a drawing while acredit decreases a drawing.

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All accounts that normally have a debitbalance are increased with a debit anddecreased with a credit.

All accounts that normally have acredit balance are increased with a

credit and decreased with a debit.

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Example 1

My business has an advertisementexpense of Rs.20,000.

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Conclusion

Dont worry if you have not fullygrasped the concept of Debits &Credits yet.

Keep in mind the old saying Out ofconfusion comes knowledge

Practice makes Perfect.