The Complete Debits and Credits Rules Cheatsheet for Accounting

Introduction

Debits and credits form the foundation of the double-entry accounting system, which has been the standard for recording financial transactions for over 500 years. Under this system, every transaction affects at least two accounts, with equal debits and credits, maintaining the accounting equation: Assets = Liabilities + Equity. Understanding the rules of debits and credits is essential for anyone working with financial records, from bookkeepers and accountants to business owners and financial analysts.

The Fundamental Accounting Equation

Assets = Liabilities + Equity

This equation must always remain in balance. Every transaction recorded must maintain this balance.

Basic Debit and Credit Rules

Account TypeDebit EffectCredit EffectNormal Balance
AssetsIncrease (+)Decrease (-)Debit
ExpensesIncrease (+)Decrease (-)Debit
Dividends/DrawingsIncrease (+)Decrease (-)Debit
LiabilitiesDecrease (-)Increase (+)Credit
Equity/CapitalDecrease (-)Increase (+)Credit
Revenue/IncomeDecrease (-)Increase (+)Credit

Golden Rule: Debits must equal credits in every transaction

Expanded T-Account Visualization

        ASSETS              LIABILITIES           EQUITY
    ┌───────────┐         ┌───────────┐        ┌───────────┐
    │  DEBIT    │         │  DEBIT    │        │  DEBIT    │
    │ Increase  │         │ Decrease  │        │ Decrease  │
    ├───────────┤         ├───────────┤        ├───────────┤
    │  CREDIT   │         │  CREDIT   │        │  CREDIT   │
    │ Decrease  │         │ Increase  │        │ Increase  │
    └───────────┘         └───────────┘        └───────────┘

        EXPENSES             REVENUE            DIVIDENDS
    ┌───────────┐         ┌───────────┐        ┌───────────┐
    │  DEBIT    │         │  DEBIT    │        │  DEBIT    │
    │ Increase  │         │ Decrease  │        │ Increase  │
    ├───────────┤         ├───────────┤        ├───────────┤
    │  CREDIT   │         │  CREDIT   │        │  CREDIT   │
    │ Decrease  │         │ Increase  │        │ Decrease  │
    └───────────┘         └───────────┘        └───────────┘

Contra Accounts and Their Normal Balances

Contra accounts have opposite normal balances to their related accounts:

AccountRelated ToNormal Balance
Accumulated DepreciationAssetsCredit
Allowance for Doubtful AccountsAssetsCredit
Sales Returns and AllowancesRevenueDebit
Sales DiscountsRevenueDebit
Purchase DiscountsExpensesCredit
Purchase Returns and AllowancesExpensesCredit

Common Account Classifications

Asset Accounts (Debit Balance)

  • Cash and Cash Equivalents
  • Accounts Receivable
  • Inventory
  • Prepaid Expenses
  • Investments
  • Property, Plant, and Equipment
  • Intangible Assets

Liability Accounts (Credit Balance)

  • Accounts Payable
  • Notes Payable
  • Accrued Liabilities
  • Unearned Revenue
  • Long-Term Debt
  • Bonds Payable

Equity Accounts (Credit Balance)

  • Common Stock
  • Preferred Stock
  • Additional Paid-in Capital
  • Retained Earnings
  • Treasury Stock (Debit Balance – Contra Equity)

Revenue Accounts (Credit Balance)

  • Sales Revenue
  • Service Revenue
  • Interest Income
  • Dividend Income
  • Rental Income
  • Commission Income

Expense Accounts (Debit Balance)

  • Cost of Goods Sold
  • Salaries and Wages Expense
  • Rent Expense
  • Utilities Expense
  • Depreciation Expense
  • Insurance Expense
  • Interest Expense
  • Advertising Expense

Step-by-Step Transaction Analysis

  1. Identify the accounts involved in the transaction
  2. Determine the account types (asset, liability, equity, revenue, expense)
  3. Apply the debit/credit rules for each account type
  4. Ensure debits equal credits in the overall transaction
  5. Record the journal entry

Common Journal Entries with Debits and Credits

1. Purchase of assets with cash

Debit: Asset (specific asset) [+]
Credit: Cash [-]

2. Purchase of assets on credit

Debit: Asset (specific asset) [+]
Credit: Accounts Payable [+]

3. Payment to creditors

Debit: Accounts Payable [-]
Credit: Cash [-]

4. Collection from customers

Debit: Cash [+]
Credit: Accounts Receivable [-]

5. Sales on credit

Debit: Accounts Receivable [+]
Credit: Sales Revenue [+]

6. Cash sales

Debit: Cash [+]
Credit: Sales Revenue [+]

7. Recording expenses

Debit: Expense (specific expense) [+]
Credit: Cash [-] or Accounts Payable [+]

8. Paying salaries

Debit: Salaries Expense [+]
Credit: Cash [-]

9. Depreciation of fixed assets

Debit: Depreciation Expense [+]
Credit: Accumulated Depreciation [+]

10. Owner’s investment

Debit: Cash [+]
Credit: Owner's Capital [+]

11. Owner’s withdrawals

Debit: Owner's Drawings [+]
Credit: Cash [-]

12. Recording accrued expenses

Debit: Expense (specific expense) [+]
Credit: Accrued Liabilities [+]

13. Adjusting prepaid expenses

Debit: Expense (specific expense) [+]
Credit: Prepaid Expense [-]

14. Recording unearned revenue

Debit: Cash [+]
Credit: Unearned Revenue [+]

15. Recognizing unearned revenue

Debit: Unearned Revenue [-]
Credit: Revenue [+]

Accounting Cycle and Debit/Credit Impact

Accounting Cycle StepDebit/Credit Consideration
1. Analyze TransactionsDetermine which accounts to debit and credit
2. Journalize EntriesRecord debits first, then credits, ensuring they equal
3. Post to LedgerTransfer debits and credits to appropriate T-accounts
4. Prepare Trial BalanceVerify total debits equal total credits
5. Adjusting EntriesRecord debits and credits for accruals, deferrals, etc.
6. Adjusted Trial BalanceAgain verify debit and credit equality
7. Financial StatementsUse proper debit/credit balances for reporting
8. Closing EntriesDebit revenue, credit expenses to Income Summary
9. Post-Closing Trial BalanceVerify permanent accounts’ debit/credit balances

Special Cases and Advanced Applications

Compound Journal Entries

Entries affecting more than two accounts, but still maintaining equal debits and credits:

Debit: Account A    $500
Debit: Account B    $300
Credit: Account C   $800

Correcting Entries

1. Correcting an Incorrect Amount

Debit: Accounts Payable    $50  (to reverse original credit of $500 instead of $450)
Credit: Cash              $50

2. Correcting a Reversed Entry

Debit: Accounts Payable    $1,000 (to reverse incorrect entry)
Credit: Cash              $1,000 (to reverse incorrect entry)

Debit: Cash              $1,000 (to record correctly)
Credit: Accounts Payable    $1,000 (to record correctly)

Closing Entries

At the end of an accounting period:

# Close revenue accounts
Debit: Revenue Accounts
Credit: Income Summary

# Close expense accounts
Debit: Income Summary
Credit: Expense Accounts

# Close Income Summary to Retained Earnings
Debit: Income Summary (if profit)
Credit: Retained Earnings

OR

Debit: Retained Earnings
Credit: Income Summary (if loss)

# Close Dividends/Drawings to Retained Earnings
Debit: Retained Earnings
Credit: Dividends/Drawings

Common Debit and Credit Pitfalls

PitfallExplanationHow to Avoid
Mixing up debit and credit effectsConfusing whether debits increase or decrease an accountMemorize the basic rules and use T-accounts
Unbalanced entriesTotal debits don’t equal total creditsAlways double-check that debits = credits
Incorrect account classificationTreating an expense as a liability, etc.Review the chart of accounts and understand each account’s nature
Recording in the wrong periodRecording transactions in incorrect accounting periodsFollow accrual accounting principles and closing procedures
Missing transactionsFailing to record all economic eventsImplement systematic processes for capturing all transactions
Contra account confusionMisunderstanding normal balances for contra accountsRemember contra accounts have opposite normal balances

Mnemonic Devices for Remembering Debit/Credit Rules

DEALER

  • Debits
  • Expenses and
  • Assets
  • Left side (increase)
  • Equity and
  • Revenue right side (increase)

CLIP ADLIGER

  • Credit Liabilities, Income, and Proprietorship
  • Assets, Drawings, and Losses Increase with Generally Every Recorded debit

“Real Accounts, Personal Accounts, Nominal Accounts” (RPN)

  • Real accounts (Assets): Debit what comes in, Credit what goes out
  • Personal accounts (Liabilities, Equity): Debit the receiver, Credit the giver
  • Nominal accounts (Revenue, Expenses): Debit expenses and losses, Credit incomes and gains

Debits and Credits in Different Accounting Systems

Accounting SystemDebit and Credit Application
Manual AccountingTraditional T-accounts with physical ledgers
Computerized AccountingSoftware applies rules automatically; user selects accounts
ERP SystemsRules embedded in complex multi-module systems
Cloud AccountingSame rules apply but with remote access and automation

Resources for Further Learning

Books

  • “Accounting Made Simple” by Mike Piper
  • “Debits and Credits Made Easy” by Michael Celender
  • “Schaum’s Outline of Bookkeeping and Accounting” by Joel Lerner

Online Resources

  • American Institute of CPAs (www.aicpa.org)
  • AccountingCoach (www.accountingcoach.com)
  • Khan Academy Accounting Courses
  • CPA Exam Review Courses

Practice Tools

  • Spreadsheet templates for T-accounts
  • Practice sets with solutions
  • Accounting software tutorials (QuickBooks, Xero, etc.)

Quick Quiz: Test Your Understanding

  1. If Cash increases by $1,000, you would:

    • Answer: Debit Cash for $1,000
  2. If you pay $500 for rent, you would:

    • Answer: Debit Rent Expense $500, Credit Cash $500
  3. If you receive $2,000 from a client for services not yet provided:

    • Answer: Debit Cash $2,000, Credit Unearned Revenue $2,000
  4. If you purchase $300 of supplies on account:

    • Answer: Debit Supplies $300, Credit Accounts Payable $300
  5. If you record $200 of depreciation expense:

    • Answer: Debit Depreciation Expense $200, Credit Accumulated Depreciation $200

Summary: The Five Core Rules

  1. Assets increase with debits, decrease with credits
  2. Liabilities and Equity increase with credits, decrease with debits
  3. Revenues increase with credits, decrease with debits
  4. Expenses increase with debits, decrease with credits
  5. In every transaction, debits must equal credits
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