6 min readConcept sheetOften a 2-mark answer, or part of a journal question

Debit and credit: the rules of double entry

Every transaction is recorded twice: a debit in one account and an equal credit in another. Assets, expenses and drawings increase on the debit side.

Debit (Dr)Left side of an account

Credit (Cr)Right side of an account

Debit increasesAssets, expenses, drawings

Credit increasesLiabilities, income, capital

Double entry

In double-entry bookkeeping every transaction affects at least two accounts, and the total of debits always equals the total of credits. 'Debit' simply means the left side of an account and 'credit' the right side; neither word means good or bad. The rule comes straight from the accounting equation: if both sides of A = L + E must stay equal, every change needs an equal and opposite record.

The rules of debit and credit

Account type	Increase	Decrease	Normal balance
Assets	Debit	Credit	Debit
Expenses	Debit	Credit	Debit
Drawings	Debit	Credit	Debit
Liabilities	Credit	Debit	Credit
Income (revenue)	Credit	Debit	Credit
Capital (equity)	Credit	Debit	Credit

Two ways the rules are taught

Modern (accounting equation) approachClassify each account as asset, liability, capital, income, expense or drawings, then apply the rules table. Used in most current textbooks.

Traditional approachPersonal accounts: debit the receiver, credit the giver. Real accounts: debit what comes in, credit what goes out. Nominal accounts: debit expenses and losses, credit incomes and gains.

Both approaches give the same entries. Use one method consistently in the exam.

Worked example: analyse transactions into debit and credit

Problem

Dharshani runs a catering service in Galle. Give the debit and credit for each transaction: (a) she brings in Rs. 300,000 cash as capital; (b) buys a gas cooker for Rs. 85,000 cash; (c) caters a wedding on credit for Rs. 120,000; (d) pays a cook's wages of Rs. 25,000 in cash; (e) borrows Rs. 200,000 from a bank in cash; (f) receives Rs. 70,000 cash from the wedding customer.

Working

(a) Cash (asset) increases: Dr Cash 300,000. Capital increases: Cr Capital 300,000.
(b) Equipment (asset) increases: Dr Kitchen equipment 85,000. Cash decreases: Cr Cash 85,000.
(c) A receivable (asset) increases: Dr Trade receivables 120,000. Income increases: Cr Catering income 120,000.
(d) An expense increases: Dr Wages 25,000. Cash decreases: Cr Cash 25,000.
(e) Cash increases: Dr Cash 200,000. A liability increases: Cr Bank loan 200,000.
(f) Cash increases: Dr Cash 70,000. The receivable decreases: Cr Trade receivables 70,000.
Debit total: 300,000 + 85,000 + 120,000 + 25,000 + 200,000 + 70,000 = 800,000. The credit total is the same, 800,000.

Answer

Each transaction has an equal debit and credit, so total debits = total credits = Rs. 800,000.

Common traps

Drawings are debited (they reduce capital); they are never an expense.
Cash sales: Dr Cash, Cr Sales. Credit sales: Dr the customer (receivable), Cr Sales.
Returns inwards (sales returns) are debited; returns outwards (purchase returns) are credited.
Paying a supplier reduces a liability: Dr the supplier (payable), Cr Cash or Bank.
Discount allowed is an expense (debit); discount received is income (credit).

In Sri Lankan business

When a customer in Jaffna pays a mobile phone bill through a bank app, the telecom company records Dr Bank and Cr Trade receivables. Its accounting software applies the same double-entry rules that you write by hand.

Exam angle

Short answer: “State the rules of debit and credit for assets and liabilities.” Assets increase with a debit and decrease with a credit; liabilities increase with a credit and decrease with a debit.

Structured question: “Explain the double-entry system and give the debit and credit for the given transactions.” Explain that every transaction has equal debits and credits, show the rules table, then analyse each transaction into its two accounts.

Remember it

DEAD CLIC: Debit increases Expenses, Assets and Drawings; Credit increases Liabilities, Income and Capital.