What Do "Debit" and "Credit" Actually Mean?
Forget what the words sound like — they don't mean "good" or "bad" or "money in" or "money out". They simply name the two sides of every account:
- Debit (Dr.) — the left side
- Credit (Cr.) — the right side
Whether a debit or a credit increases an account depends entirely on what kind of account it is.
Modern Rules — by Account Type
The cleanest way to learn debit/credit is by account category:
| Account Type | Debit (Dr.) | Credit (Cr.) |
|---|---|---|
| Asset | Increase | Decrease |
| Liability | Decrease | Increase |
| Capital | Decrease | Increase |
| Revenue / Income | Decrease | Increase |
| Expense / Loss | Increase | Decrease |
Memory aid: Assets and expenses share the same rule (debit to increase). Liabilities, capital and revenue share the opposite rule (credit to increase). If you remember "DEAD CLIC" — Debit: Expenses, Assets, Drawings; Credit: Liabilities, Income, Capital — you'll never get it wrong.
Classification of Accounts
Indian accounting traditionally classifies accounts into two big groups:
| Type | Description | Examples |
|---|---|---|
| Personal | Accounts of individuals, firms, companies or institutions | Ernst & Young A/c, Bank A/c, Rohan's A/c |
| Real | Things with monetary value that are property of the business | Cash A/c, Furniture A/c, Goodwill A/c |
| Nominal | All expenses, losses, incomes and gains | Salaries Paid, Interest Received, Rent Paid |
Three subtypes of personal accounts
- Natural personal — accounts of actual human beings (Debtors A/c, Proprietor's Capital A/c)
- Artificial personal — entities that aren't humans but legally act as persons (Limited Company A/c, Bank A/c)
- Representative personal — represent a person or group of persons (Accrued Interest A/c, Unearned Commission A/c)
Two subtypes of real accounts
- Tangible real — physically touchable (Land A/c, Building A/c, Stock A/c)
- Intangible real — has value but no physical existence (Goodwill A/c, Patents A/c, Copyrights A/c)
The Traditional Golden Rules
| Account Type | Rule |
|---|---|
| Personal | Debit the receiver, credit the giver |
| Real | Debit what comes in, credit what goes out |
| Nominal | Debit all expenses and losses, credit all incomes and gains |
Applying the Rules — Worked Examples
Example 1: Cash received from Rohan ₹5,000
Cash A/c is a real account — cash is coming in, so debit it. Rohan is a personal account — he is the giver, so credit him.
Example 2: Salaries paid ₹10,000 in cash
Salaries is a nominal account — expense, so debit. Cash A/c is real — cash is going out, so credit.
Example 3: Goods purchased on credit from Mehta & Co. ₹25,000
Purchases A/c is nominal (expense — debit). Mehta & Co. is personal (giver — credit).
When a Nominal Account Becomes Personal
Watch out for this one. The moment you add a qualifier like "outstanding", "prepaid", "accrued" or "unearned" to a nominal account, it becomes a personal (representative) account.
- Interest A/c — Nominal (expense or income)
- Interest Outstanding A/c — Personal (represents the lender waiting to be paid)
- Salary A/c — Nominal
- Salary Prepaid A/c — Personal (represents the staff who owe future work)
You don't need to memorise classifications — every ledger in iAccounting has its account type tagged at creation. When you pass an entry, the software automatically applies the right rule and flags anything that looks wrong before you save.
See guided entry →Continue Learning
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