Debit and Credit Tips

Debit and credit are the two parts of any journal entry. We pass the journal entry on the basis of double entry system. In double entry system, it is must to show one account as debit and other account as credit. At accounting education, our past accounting lectures helped you to clear your doubts relating to debit and credit.

For this, we have written many journal entries examples. We have also written journal entries of different transactions. Our aim is sole to make you perfect in debit and credit. In this series of lectures, today, we are sharing some debit and credit tips which will be helpful.

1st Tip of Debit and Credit : Both debit and credit is used for different accounts. We should know first the types of accounts. One is asset accounts, second is liabilities account, third is expenses account and fourth is income accounts. All these account either debit or credit in any journal entry.

2nd Tip of Debit and Credit  : If there is any increase in our asset, that asset account will be debit. For example, we have bought surgery laser machine for hospital. With this, total assets of hospital will increase. To showing this increase in the accounts of hospital, we must  debit surgery laser machine in the journal entry. Buying of surgery laser machine is the small example of increase of asset in hospital business. Today, there are millions of businesses from small to large scale. When you will become the accountant or businessman of these business, you must know what are your assets. There are two types of assets. One is current and second is fixed. Whether there is current asset or fixed asset, if there is any increase in these assets, we must debit related asset account in our journal entry. There are also some assets which are not physical but there is financial existence of asset. Still, if there is any increase in intangible asset, we must debit related intangible asset. For example, you make your own toilet cleaner. You have own formula for making bet toilet cleaner which you have learned after many years research. For selling it commercial in the market, you have registered your product's trade-mark. Now, this is your asset and it will increase in total asset. So, cost of trade-mark account will be debit.

3th Tip of Debit and Credit : If there is any decrease in our asset, that asset will be credit. It is just opposite rule of debit. We will credit the decrease in our asset because when we open same account, other debited account will be credit in this account. So, balance of total asset will deduct with credit amount of same asset. Now, when we compare the account balance of asset with physical value of asset, balance will be same.

4th Tip of Debit and Credit : If there is any decrease in the liability, that liability account will be debit. We know that every liability consume our asset. It means decrease in liability means decrease in asset or increase in other liability. But in 3rd tip, we have explained that decrease in asset must credit, then other debit side may be decrease in liability which must be debit.

5th Tip of Debit and Credit : If there is any increase in the liability, that liability account will be credit because when we take loan or invest new capital, our liabilities are increased but same time, we obtained the assets from same liabilities. In simple word, any increase in liability means increase in the asset. In 2nd tip, we have explained that increase in asset will debit, then same time increase in the liability will credit. For example, we took $ 10,000 loan. It means, we have increased our cash balance with $ 10,000. Cash account will be debit because it is increase in asset and other side, loan account will be credit because loan is increase in the liability.

6th Tip of Debit and Credit : If there are the expenses of business, these expenses account must be debit because it consume our capital. Capital is the liability of businessman. When decrease in the liability, it will automatically debit. Actually, it is extension of 4th tip.

7th Tip of Debit and Credit : If there are incomes of business, it must be credit because increase in the income means increase in capital because capital is the liability. So, increase in the liability must credit as per 5th tip. This 7th tip is extension of 5th tip.

Related : Accounting Tips 


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Accounting Education: Debit and Credit Tips
Debit and Credit Tips
Accounting Education
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