In order to record transactions in financial accounting, the accountant has to make debit and credit entries. In order to make any item debit and credit, there are certain rules to be followed. These are called debit credit rules.
An item is debited under the following situations:
- Increase in assets
- Decrease in liabilities
- Increase in expense
- Decrease in income
- Decrease in equity
An item is credited under the following situations:
- Increase in liabilities
- Decrease in expense
- Increase in income
- Increase in equity
Keep in mind while dealing with contra accounts, the accountant has to treat these as opposed to their related normal accounts.
Examples
1. Mr. A invests $5,000 into the business.
2. Alpha buys computers on credit from a supplier amounting to $2,000.
3. Beta pays outstanding salaries amounting to $700.
| Description | Debit | Credit |
| Cash (It is an asset increase, thus debited) | 5,000 | |
| Capital – A (It is an equity increase, thus credited) | 5,000 | |
| Computers (It is an asset increase, thus debited) | 2,000 | |
| Accounts Payable (It is a liability increase, thus credited) | 2,000 | |
| Salaries Payables (It is a liability decrease, thus debited) | 700 | |
| Cash (It is an asset decrease, thus credited) | 700 |