All about debit and credit

Debit

(1) The term Debit is used in the context of recording a transaction which results is an increase in the value of an asset or decrease in the amount of liability.

(2) Here we have to remember that the above stated transactions are recorded on the left hand side of an account when we put together the two sides of an account in ‘T’ form.

Credit

(1) The term credit is used to record the transactions which result in a decrease in assets and an increase in liability.

(2) Thus, while recording the above stated transactions we enter them on the right hand side of an account.

These can be better explained with the elements of accounting equation.

Assets = Liabilities + Capital

First of all , to decide which aspect of an accounting transaction is Debit and which is credit we have to see how they affect the elements of this accounting equation.

(1) On Assets :

Always a Debit item increases the value of an asset and a credit item decreases the value of that asset.

(2) On Liabilities :

A Debit aspect decreases the liability and credit aspect increases the liability.

(3) Capital :

A Debit entry decreases the capital and a credit item increases the capital.

And the impact on expenses and incomes:

(1) A Debit item increases the expenses and decreases the income.

(2) A credit item increases the income and decreases the expenses.