Debit and credit

Each item in the books has its own account. Draw it like a T: the left side is the debit side (Dr.), the right side is the credit side (Cr.). The difference between the two sides is the balance.

Debit and credit are just left and right. They do not mean good or bad, and debit does not always mean an increase. Which side records an increase depends on the type of account.

• Assets and expenses or losses: an increase is debited, a decrease is credited.
• Liabilities, capital, and revenues or gains: an increase is credited, a decrease is debited.

A memory aid: assets and expenses sit on the left side of the equation's story; liabilities, capital and income sit on the right. So debiting a liability makes it smaller: paying a creditor debits the creditor's account.

Drawings reduce the owner's capital, so they are recorded as a debit. Commission received is income, and income increases on the credit side, so it is credited.

In every transaction the total debits equal the total credits. Salary of ₹5,000 paid in cash: salary is an expense going up (debit Salary ₹5,000); cash is an asset going down (credit Cash ₹5,000).