The rules of accounting principles, particularly concerning debit and credit entries, dictate how transactions are recorded in a double-entry accounting system. Here's a breakdown based on the provided references:
These rules fundamentally govern how increases and decreases in accounts are recorded. In double-entry bookkeeping, for every transaction, at least two accounts are affected; one account will be debited, and another will be credited. This system ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.
Core Rules of Debit and Credit
The rules for debiting and crediting differ based on the type of account involved. The fundamental principles are:
| Rule | Description | Example |
|---|---|---|
| Rule 1: Debit all expenses and losses, credit all income and gain. | This rule pertains to the income statement accounts. Expenses and losses reduce net income and are thus debited. Income and gains increase net income and are therefore credited. | A company pays rent. The expense account "Rent Expense" is debited, and the cash account is credited. |
| Rule 2: Debit the receiver, credit the giver. | This rule is generally applied to personal accounts. The entity receiving a benefit is debited, and the entity providing the benefit is credited. | In a purchase from a supplier on credit, the supplier gives goods/services and is credited, while the company receives those goods/services (or the benefit thereof) and has the relevant asset (e.g., Inventory) debited. |
| Rule 3: Debit what comes in, credit what goes out. | This rule is applied to real accounts, i.e., tangible assets like cash, equipment, or inventory. When something enters the business, you debit that account. When something leaves, you credit that account. | A company purchases equipment. The "Equipment" account (what comes in) is debited, and the "Cash" account (what goes out) is credited. |
These rules might seem abstract, but they are the backbone of the double-entry accounting system. Understanding how to apply them is essential for accurate financial record-keeping.
