Debit & Credit

Last Updated On -26 May 2025

In accounting, "debit" and "credit" are more than just words used on your bank statement. The foundation of the double-entry accounting system, a generally acknowledged approach for tracking financial transactions, is them. Whether you study commerce, create balance sheets, or examine financial reports, knowing these two words is absolutely vital.

We will go over what debit and credit mean, how they operate, and how they comprise the building blocks of all accounting records on this site.

Define Debit and Credit

Fundamentally, credit (Cr) and debit (Dr) are accounting entries used to document firm transactions in their books. At least two accounts are impacted in every financial transaction, and the overall amount debited must equal the overall amount credited.

Consider it as a balanced scale; every accounting action, a debit has an equal and opposite reaction to a credit. The double-entry accounting method rests on this basis.

Meaning and Rules of Debit & Credit

The type of account involved determines whether debit or credit has value.

The Golden Rules of Accounting split by account type follow here:

Account Type	Debit (Dr)- Increases	Credit (Cr)- Increases
Assets	Yes	No
Liabilities	No	Yes
Capital	No	Yes
Revenue/Income	No	Yes
Expenses/Losses	Yes	No

Debit means:

Increases in assets
Increases in expenses
Decrease in liabilities or capital

Credit means:

Increase in liabilities or capital
Increase in income
Decrease in assets

Examples of Credit and Debit

For example, a company purchases furniture valued at ₹10,000 in cash.
Affected accounts include furniture (asset), cash (asset).

Entry:

Furniture A/c - Dr. ₹10,000

To Cash A/c - Cr ₹10,000

Explanation: Cash increases (debit), cash decreases (asset)

For example, Owner Invests Capital. The owner puts ₹50,000 into the company.
Affected accounts include Cash ( Asset), Capital (Liability from business standpoint)

Entry:

Cash A/c - Dr. ₹50,000

For Capital A/c - Cr ₹50,000

Explanation: Cash rises (debit); capital (debt) rises (credit).

Why are Credit & Debit Important?

Anyone learning or working in business, accounting, or finance must first understand debit and credit. These ideas enable correct documentation, financial statement preparation, and firm health evaluation. Once you understand the reasoning behind it, it becomes second nature even if it could appear difficult at first. Whether your goals are to be a Chartered Accountant, be ready for professional tests, or just inquisitive about how companies handle money, knowing the fundamentals of debit and credit can help you much on your financial road.

Accuracy guarantees correct recording of every transaction.
Helps monitor every rupee entered into or left from a firm.
Forms the foundation for creating the Trial Balance, Profit & Loss Account, and Balance Sheft.
Correct debits and credits help to identify and stop mistakes and fraud more easily.

Typical Errors to Avoid in Credit & Debit

Credit always implies money in; thinking debit always means money out. The type of account will determine this.
Ignoring the need of balancing both sides. Every debit has to be matched in credit.
Misclassifying narratives — Find out if the account represents an asset, liability, income, or expense.

Did you know?

Luca Pacioli formally developed the idea of double-entry bookkeeping—which depends on debits and credits—in 1494. Often known as the Father of Accounting, his method is still applied today more than 500 years later!