What Is Debit And Credit? Accounting Basics With Real-Life Examples

If you have any idea about accounting, then you must know that every financial transaction involves a debit and a credit. These entries help record where the money is coming from and where it is going.

For example, my friend Shreya runs a small bakery. Recently, she purchased a new oven worth ₹25,000. She paid through her business account. In her financial book, she added the oven to her assets (debit) and reduced her bank balance (credit).

This small example highlights how entries affect two accounts. Credit and debit are more than technical terms alone. They play a vital role in helping individuals and businesses maintain accurate financial records.

This blog will talk about the meaning of debit and credit, accounting equation, and when you can use debit and credit. Further, it will also talk about the rules related to debit and credit.

What Is Debit?

You need to show this entry in an account on the left-hand side. Usually, it means one of the following:

• Increase in assets (like furniture, cash, stock).
• Increase in expenses (like electricity, salary).
• Decrease in liabilities (like loan repayment).

What Is Credit?

You need to show this entry in an account on the right-hand side. It typically means:

• Increase in liabilities (like loans taken).
• Increase in income or revenue (like sales).
• Decrease in assets (like cash withdrawal).

Single-Entry And Double-Entry Bookkeeping

Single-entry System:

In this system, you will record only one side of each transaction, usually the cash side. Small businesses or shops generally use it.

Example:

Suppose you receive ₹10,000 cash. You will only note cash inflow. There is no need to mention its origin.

Double-entry System:

Here, you need to reflect both transactions, the inflow and the outflow, clearly. It is mandatory for accurate financial statements.

Example:

You bought furniture worth ₹15,000 in cash. So, the journal entry for it will be:
 

Let’s look at the key difference between the two types of bookkeeping:
 

In accounting, the double-entry system includes the idea of debit and credit.

Golden Rules Of Debit And Credit

Accountancy has three golden rules that are followed from the basics to advanced accounting.
 

Example:

You paid ₹12,500 for office rent in cash. 

• Rent is an expense, so you need to debit the rent account.
• You must credit the cash account as money is flowing out. 

Accounting Equation

Have you ever wondered why the entire concept of debit and credit is built around what? The correct response to your question is the accounting equation.

Assets = Liabilities + Capital

You always need to balance this equation. If a transaction affects one side, it must also affect the other.

Example:

You, as an owner, introduce ₹1,00,000 as capital.

• Increases Cash (Asset): Debit
• Increases Capital: Credit
   

You must ensure equal values on both ends to preserve the equation’s balance.
 

You can observe from this table how each entry aligns with the rules of the accounting equation.

When Can You Use Debit And Credit?

If you understand when to debit and when to credit, then it makes accounting easier for you:
 

In the above-mentioned table, you can see some common transactions and how they are recorded in the financial books. 

Real-Life Scenarios

The following are the common scenarios:

1. Owner Invests Capital

The owner puts ₹1,50,000 into the business.

• Debit: Cash A/c ₹1,50,000
• Credit: Capital A/c ₹1,50,000

2. Loan Taken from Bank

The business receives a loan of ₹2,00,000.

• Debit: Bank A/c ₹2,00,000
• Credit: Loan from Bank A/c ₹2,00,000

3. Sold Goods in Cash

Cash sale of ₹18,000.

• Debit: Cash A/c ₹18,000
• Credit: Sales A/c ₹18,000

T-Account Illustration

In a T-account, you can visually see how debits and credits affect each account.

Example: Bank Account 
 

Net Balance in Bank = ₹3,50,000 - ₹91,500 = ₹2,58,500. You will show ₹2,58,500 on the credit side of the bank account as balance c/d.

Modern Rules Of Debit And Credit

Accounting basics have evolved. Modern rules classify accounts differently. It classifies accounts based on their nature in the accounting equation.
 

These rules align closely with how accounts appear in financial statements. Also, they are easier for beginners using software like Tally.

Conclusion

From the above-mentioned information, you might have gained some knowledge of debit and credit. They are practical tools that help you keep financial records clean and meaningful. They help you ensure that your business’s financial health can be reviewed at any point through proper statements.

To start with debit and credit, you need to learn both the golden and modern rules. Also, you need to apply them through the double-entry system to ensure transparency, accuracy, and reliability.

No matter what your profession is, mastering debit and credit will bring you clarity and confidence in handling accounts.

FAQs

1. Can debit be more than credit?

No, both must always be equal.

2. Is capital introduced as a debit?

No, it is credited.

3. Is rent paid a debit or credit?

It is an expense, so it is debited.

4. Which system uses both debit and credit?

Double-entry bookkeeping.

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