Ask any CA how they decide what to debit and what to credit, and they will point you to the three golden rules of accounting. These rules come from the traditional (British) classification of accounts into personal, real and nominal accounts, and they are still the fastest way for a small-business owner in India to make sense of bookkeeping. Let us walk through each rule with everyday examples in rupees.
First, classify the account
Before applying any rule, you must know what type of account you are dealing with. Every ledger account falls into one of three buckets:
- Personal accounts — persons and organisations you deal with: Ramesh & Sons (a customer), Bharat Traders (a supplier), SBI Bank, Capital account of the owner.
- Real accounts — assets and property the business owns: Cash, Furniture, Machinery, Stock, Building, even Goodwill.
- Nominal accounts — expenses, losses, incomes and gains: Rent, Salaries, Commission Received, Interest Paid, Discount Allowed.
If you are unsure how these fit into the bigger picture, our tutorial on the accounting equation shows how assets, liabilities and capital connect.
Rule 1 — Personal account: Debit the receiver, credit the giver
When a person or firm receives a benefit from your business, debit their account. When they give a benefit, credit their account.
Example: You sell goods worth ₹25,000 on credit to Ramesh & Sons.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Ramesh & Sons A/c Dr. (receiver of goods) | 25,000 | |
| To Sales A/c | 25,000 |
Ramesh & Sons received the goods, so his personal account is debited. When he pays you later, he becomes the giver of cash, so you will credit his account and debit Cash.
Rule 2 — Real account: Debit what comes in, credit what goes out
Assets follow the direction of movement. Whatever asset enters the business is debited; whatever leaves is credited.
Example: You buy office furniture for ₹40,000, paying by cheque.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Furniture A/c Dr. (asset comes in) | 40,000 | |
| To Bank A/c (money goes out) | 40,000 |
Furniture came into the business, so it is debited. Bank balance went out, so Bank is credited. (Strictly, Bank is a personal account — the bank is the giver here — but notice how both rules lead to the same answer. That is the beauty of double entry.)
Rule 3 — Nominal account: Debit expenses and losses, credit incomes and gains
All expenses and losses are debited; all incomes and gains are credited.
Example 1: You pay shop rent of ₹15,000 in cash.
- Rent A/c Dr. ₹15,000 (expense — debit)
- To Cash A/c ₹15,000 (cash goes out — credit)
Example 2: Your business earns ₹2,000 as commission, received in the bank.
- Bank A/c Dr. ₹2,000
- To Commission Received A/c ₹2,000 (income — credit)
All three rules at a glance
| Account type | Examples | Rule |
|---|---|---|
| Personal | Customers, suppliers, banks, capital, drawings | Debit the receiver, credit the giver |
| Real | Cash, stock, machinery, furniture, buildings | Debit what comes in, credit what goes out |
| Nominal | Rent, salaries, interest, commission, discounts | Debit expenses & losses, credit incomes & gains |
A combined example from a real shop
Suppose Meena runs a kirana store in Pune. In one day she: (a) buys stock worth ₹30,000 from Bharat Traders on credit, (b) pays ₹500 for tempo delivery in cash, and (c) sells goods for ₹12,000 cash.
- Purchases A/c Dr. ₹30,000 → To Bharat Traders A/c ₹30,000 — goods (real) come in; Bharat Traders (personal) is the giver.
- Carriage Inwards A/c Dr. ₹500 → To Cash A/c ₹500 — expense (nominal) is debited; cash (real) goes out.
- Cash A/c Dr. ₹12,000 → To Sales A/c ₹12,000 — cash comes in; sales is an income/gain, so it is credited.
Three transactions, three rules, and every entry balances. Once these entries are journalised, they are posted to individual accounts — see our guide on ledger posting to follow the next step.
Golden rules vs the modern approach
Modern textbooks (and most accounting software) use the American approach: increases in assets and expenses are debits; increases in liabilities, capital and incomes are credits. Both systems always produce identical entries — they are two roads to the same destination. If you would like to see the modern method side by side, read our tutorial on the rules of debit and credit.
Common mistakes to avoid
- Confusing drawings with expenses. Money the owner withdraws for personal use is debited to Drawings (a personal account), not to any expense head.
- Treating GST as income or expense. GST collected on sales is a liability, and GST paid on purchases is usually an asset (input tax credit) — not a nominal account.
- Forgetting the second leg. Every debit must have an equal credit. If your entry does not balance, the transaction is incomplete.
- Debiting the seller instead of the buyer. In a credit sale, always debit the customer (the receiver), never the supplier.
For a full worked set of transactions from journal to trial balance, continue with our journal entries tutorial.
The bottom line
Classify the account, apply the matching rule, and check that debits equal credits — that is the whole craft in three steps. And if you would rather describe the transaction in plain English and let software pass the entry, iAccounting's built-in AI accountant applies these rules for you automatically, every single time.