Liabilities are recorded on the credit side of the liability accounts. Whenever an amount of cash is paid out, an entry is made on the credit side of the cash in hand account. Whenever an amount of cash is received, an entry is made on the debit side of the cash in hand account. Any increase to an asset is recorded on the debit side and any decrease is recorded on the credit side of its account.įor example, the amount of cash in hand on the first day of the accounting period is recorded on the debit side of the cash in hand account. Rules for Asset AccountsĪssets are recorded on the debit side of the account. The following rules of debit and credit are applied to record these increases or decreases in individual ledger accounts. Rules of Debit and Creditĭebit and credit are financial transactions that increase or decrease the values of various individual accounts in the ledger. They are also useful for the management in promoting effective decision-making. Today, accountants adopt practices like the use of these columns to keep records that are used on a long-term basis. Debit (Dr.) involves making an entry on the left side and Credit (Cr.) involves making an entry on the right side. In spite of all the discussion surrounding these terms, we can also say that they are the fundamental operators of accounting, which underpin the subject.ĭebit and credit represent two sides (columns) of an account (i.e., a Debit column and a Credit column). Similarly, the word "credit" has its historical roots in the Latin word credere, meaning "to believe." In accounting, this is often abbreviated as "Cr." Historically, the word "debit" derives from the Latin word debere, which means "to owe." In accounting, this has been shortened to "Dr." There is no standard definition for the terms debit and credit.
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