"Debit" and "credit" cause more confusion than any other two words in accounting, mostly because everyday speech uses them to mean "minus" and "plus". In the books they mean left side and right side, and what each side does depends on the type of account.
The comparison table
| Debit (Dr) | Credit (Cr) | |
|---|---|---|
| Side of the account | Left | Right |
| Position in a journal entry | Written first | Written second, indented, with "To" |
| Assets | Increase | Decrease |
| Expenses and losses | Increase | Decrease |
| Liabilities | Decrease | Increase |
| Capital | Decrease | Increase |
| Income and gains | Decrease | Increase |
| Balance of the account | Assets and expenses normally have a debit balance | Liabilities, capital and income normally have a credit balance |
Every transaction has equal debits and credits — that is the double-entry principle, and it is why a trial balance must balance.
The memory rule: DEAL and CLIP
- DEAL — Dividends/Drawings, Expenses, Assets, Losses — go up with a debit.
- CLIP — Capital, Liabilities, Income, Provisions/Profits — go up with a credit.
If you know which group an account belongs to, you know which side increases it.
Three examples, both ways round
Paid salary ₹10,000 in cash. Salary is an expense (DEAL) — it increases, so debit Salary. Cash is an asset (DEAL) — it decreases, so credit Cash. Salary A/c Dr 10,000 · To Cash A/c 10,000.
Took a bank loan ₹1,00,000. Bank balance (asset) increases — debit Bank. Loan (liability, CLIP) increases — credit Loan. Bank A/c Dr 1,00,000 · To Bank Loan A/c 1,00,000.
Sold goods for cash ₹5,000. Cash increases — debit. Sales (income, CLIP) increases — credit. Cash A/c Dr 5,000 · To Sales A/c 5,000.
Why your bank calls a deposit a "credit"
Your bank statement is a copy of the bank's ledger, not yours. To the bank, your deposit is money it owes you — a liability — and liabilities increase with a credit. In your books, the same ₹5,000 is an increase in an asset (Bank A/c), so you debit it. Both books are right; they just sit on opposite sides of the same transaction.
Where students go wrong
- Treating debit as "bad" and credit as "good". Neither is; they are directions.
- Applying the asset rule to everything. Liabilities and income move the opposite way.
- Forgetting drawings and expenses are debited — students credit them because "money left".
- Producing entries whose debits and credits do not add up. Check the totals before moving on.
How it is tested
Class 11 asks for the rules (traditional or modern) and their application to 6–10 transactions. CA Foundation and CMA Foundation ask MCQs such as "an increase in liability is recorded on the ___ side" and multi-account entries with discounts and GST where you must keep totals equal across three or four lines.