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Tutorial 06 · Beginner · 11 min read

The Rules of Debit and Credit

Debit the receiver, credit the giver — you have heard the rules. This lesson connects them to the modern asset / liability / capital framework so you never have to memorise direction again.

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 TypeDebit (Dr.)Credit (Cr.)
AssetIncreaseDecrease
LiabilityDecreaseIncrease
CapitalDecreaseIncrease
Revenue / IncomeDecreaseIncrease
Expense / LossIncreaseDecrease

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:

TypeDescriptionExamples
PersonalAccounts of individuals, firms, companies or institutionsErnst & Young A/c, Bank A/c, Rohan's A/c
RealThings with monetary value that are property of the businessCash A/c, Furniture A/c, Goodwill A/c
NominalAll expenses, losses, incomes and gainsSalaries 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 TypeRule
PersonalDebit the receiver, credit the giver
RealDebit what comes in, credit what goes out
NominalDebit 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.

Cash A/c Dr. 5,000
To Rohan A/c 5,000
(Being cash received from Rohan)

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.

Salaries A/c Dr. 10,000
To Cash A/c 10,000
(Being salaries paid)

Example 3: Goods purchased on credit from Mehta & Co. ₹25,000

Purchases A/c is nominal (expense — debit). Mehta & Co. is personal (giver — credit).

Purchases A/c Dr. 25,000
To Mehta & Co. A/c 25,000
(Being goods purchased on 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)
In iAccounting

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 →

Build on this lesson with these related tutorials:

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