Debit and Credit and its rules are one of the most important and basic workings of accounting. Every Accountant and bookkeeper should know about the chart of accounts, how and where they will be recorded. Classification is to enter the journal entry in proper columns, books of accounts with the proper head of chart of accounts.
Just like the rule of two plus two is equal to four of math formula, accounting itself have a rule of an equation. For balancing the accounts by classifying the nature of accounts.
Both are Latin words, In Latin Debits is Debere and Credit is Credere. After innovation and modernization of accounting, double entry bookkeeping comes into practice. They are two columns of day book, ledgers, Dr always on the left side and Cr on the right side.
Definitions: Dr that what the organization owe, which it can claim or in simple which relate to the organization.
Cr., that is entrusted by the organization or owes by others and can claim any time or at given time.
Some people said in simple words, what comes to the organization is Dr and Credit whats gone from the business entity.
Before understanding the Dr and Cr you should have knowledge of Accounting Terminologies and Chart of accounts. If you did not know about what are assets, then you will face problems whiling posting it with Dr and Cr column.
Debit and Credit Rules
- Dual Concept: Every account has a dual aspect. If something Debit then there should be something credit.
- An equal amount in Debit and Credit: Both columns should have equal Amount. If 1000$ is debited, then the amount of $ 1000 (Total) Should also be credit with an accounts.
- One or more Accounts: It’s possible that one account is debited but in credit, there is two charts of accounts.
- When assets will be increased they will be debited and if there is decreased it will be recorded in Cr side.
- All Expense will be debited when increased and credited when they decreased.
- Income will be credit when it will be decreased and debited when decreased.
- When liabilities increased they will be credited and when decreased they will be debited.
- Capital also will be credited when there is increased and Debited when there is decreased.
- Debtors or Accounts receivable will be debit when grow and credited when decreased.
You have passed correct entry or not, can be guessed from accounting equation. Dr and Cr always follow the rules of accounting equations. What is the accounting equation, it the result of accounting process.