What Does DEBIT Mean..? What Does CREDIT Mean..?

Debit means ‘post in the debit side of an account’ and credit means ‘post in the credit side of an account’.

Debit side is the left hand side of an account and credit side is the right hand side of an account

                                                                      ………..Account

Debit Side	Credit Side

Rule of debit and credit is different for different accounts. Normally there are five categories of accounts. They are;

1.      Asset Accounts (Buildings, plant, furniture, cash, inventory, debtors etc.)

2.      Expense Accounts (salary, rent, electricity, depreciation etc.

3.      Liability Accounts (debentures, loans, creditors, outstanding expenses etc.

4.      Income Accounts (interest, dividend, commission, fees etc. received)

5.      Capital Accounts. (equity share capital, preference share capital etc.)

Every transaction in a business organization affects (increase/decrease) any two of above accounts. 

How it affects? 

That is the rule of debit and credit.

Rule of debit and credit (when to debit an account and when to credit an account)

Account	Effect	Debit/Credit
Assets	increase	debit
	decrease	credit
Expenses	increase	debit
	decrease	credit
liabilities	increase	credit
	decrease	debit
Incomes/revenue	increase	credit
	decrease	debit
capital	increase	credit
	decrease	debit

So,

·         identify the two accounts in a transaction,

·         then see the effect of transaction on the accounts,

·          and decide which account is to be debited and which account is to be credited