Rules for Debit and Credit

Debits are on the LEFT. Credits are on the RIGHT.

Welcome to the obstacle course. Here’s where we’re going to put this concept to work.

Assets are on the left. Got that? Debits are on the left.

Whenever you code an entry to an asset account that increases the amount, you put the amount in the debit column.

And yes, you over there, those assets include cash. If money is received, cash is debited. Not credited, DEBITED!

Why? Because cash is an asset. Assets are on the left. Debits are on the left. Increases to assets are debited.

For liabilities and the equity, it goes on the right side or credits are on the right.

If you take out a loan, you will credit your liability. That is because loans increase liabilities. Liabilities are on the right. Credits are on the right.

Now what about the reverse? What about when assets or other stuff goes down? Well, the reverse is the reverse!

If the value of assets goes down then it is Credited and if the value of liabilities and equity go down then it is debited.

When you write a check, you credit cash. Checks reduce cash. Cash is an asset. Assets are on the left. Credits are on the right. Credits make assets go down. They are the reverse of debits.

When you pay off a loan, you debit liabilities. Liabilities are on the right. Debits are on the left. Debits make liabilities go down. They are the reverse of credits.

Assets are on the left. Liabilities and Equities are on the right! I will say this again. Debits are on the left. Credits are on the right.

Equity consists of (1) money owners have invested in the company and (2) the results of operations. That’s net income to you.

Net income comes from where? The Income Statement. Revenues minus expenses are net income. And as I just said, net income is an item in Equity.

Equity is on the Right. The Income Statement accounts all result in net income. Net income is in equity. Which is on the right.

This means that anything that increases net income will increase equity. Which is on the right.

Revenues increase net income. They are credited. Because they are on the right!

Expenses decrease net income. They are debited. Because they are on the left!