DEBIT AND

CREDIT RULE:
THE FOUNDATION OF ACCOUNTING
CONTENT 01
INTRODUCTION
This rule dictates how
transactions are recorded in a
double-entry accounting
system, maintaining the
balance between assets,
liabilities, equity, expenses,
and revenues

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CONTENT 02
UNDERSTANDING ASSETS,
LIABILITIES, EQUITY, EXPENSES, AND
REVENUE
 Assets: Resources controlled by
a company with future economic
benefits, such as cash, inventory,
and equipment.
 Liabilities: Obligations owed by
a company to external entities,
such as accounts payable and
loans payable.

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 CONTENT 02
UNDERSTANDING ASSETS,
LIABILITIES, EQUITY, EXPENSES, AND
REVENUE
Equity: The owner's interest in a
company, representing the residual
value after deducting liabilities from
assets.
 Expenses: Costs incurred in
generating revenue, such as rent,
utilities, and salaries.
 Revenues: Income earned from the
sale of goods or services, providing
the primary source of funding for
operations.
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 THE DEBIT AND CREDIT RULE: A BALANCING ACT

NOTE NOTE

The debit and credit This rule ensures that the

rule dictates that for accounting equation
remains in balance,
every debit entry, there
reflecting the fundamental
must be an equal credit principle of financial
entry. reporting: Assets =
Liabilities + Equity.

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 DEBIT AND CREDIT RULES FOR DIFFERENT ACCOUNT
TYPES

IT'S CRUCIAL TO UNDERSTAND THE

SPECIFIC RULES FOR DIFFERENT
ACCOUNT TYPES
Assets: Debit increases assets and
credit decreases assets.
Liabilities: Debits decrease liabilities
and credits increase liabilities.
Equity: Debits decrease equity and
credits increase equity.
Expenses: Debits increase
expenses and credits decrease
expenses.
Revenues: Debits decrease
revenues and credits increase
revenues.
EXAMPLES OF DEBIT AND
CREDIT ENTRIES

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To illustrate the debit and credit rule, 10

consider the following examples

Purchasing inventory for $1,000:
Debit: Inventory ($1,000)
Credit: Accounts Payable ($1,000)

Paying rent of $500:

Debit: Prepaid Rent ($500)
Credit: Cash ($500)

Recording a sale of goods for $200:

Debit: Cash ($200)
Credit: Sales Revenue ($200)
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