Debit and Credit Rules Cheat Sheet
Assets = Liabilities + Equity
1. Which side increases each account?
| Account type | Examples | Increases with | Decreases with | Normal balance |
|---|---|---|---|---|
| Assets | Cash, inventory, equipment, receivables | Debit | Credit | Debit |
| Expenses | Rent, wages, utilities | Debit | Credit | Debit |
| Drawings / Dividends | Owner withdrawals | Debit | Credit | Debit |
| Liabilities | Loans, payables, accrued expenses | Credit | Debit | Credit |
| Equity | Capital, retained earnings | Credit | Debit | Credit |
| Revenue | Sales, fees, interest income | Credit | Debit | Credit |
Memory aid: DEALER (Dividends or Drawings, Expenses, Assets) increase with a debit. LER (Liabilities, Equity, Revenue) increase with a credit.
2. The three golden rules (traditional approach)
| Account | Rule |
|---|---|
| Personal (people and organisations) | Debit the receiver, credit the giver |
| Real (assets and property) | Debit what comes in, credit what goes out |
| Nominal (income, expenses, gains, losses) | Debit expenses and losses, credit incomes and gains |
3. Entries for common transactions
| Transaction | Debit | Credit |
|---|---|---|
| Owner invests cash | Cash | Capital |
| Take out a bank loan | Cash | Loan payable |
| Buy equipment for cash | Equipment | Cash |
| Buy inventory on credit | Inventory | Accounts payable |
| Pay a supplier | Accounts payable | Cash |
| Sell goods for cash | Cash | Sales |
| Sell goods on credit | Accounts receivable | Sales |
| Customer pays what they owe | Cash | Accounts receivable |
| Pay rent | Rent expense | Cash |
| Owner withdraws cash | Drawings | Cash |
| Wages owed at year-end | Wages expense | Accrued wages |
| Pay insurance in advance | Prepaid insurance | Cash |
| Record depreciation | Depreciation expense | Accumulated depreciation |
| Write off a bad debt | Bad debts expense | Accounts receivable |
4. The recording process
Transaction → Journal entry → Ledger posting → Trial balance → Adjusting entries → Financial statements → Closing entries. Total debits must always equal total credits.
Learn more: Debit · Credit · Debit or Credit game · everythingaboutaccounting.info