Meaning of debit & credit
Debit and credit are accounting terms used to denote entry of a transaction in ledger accounts. The meaning of these terms is different for different for categories of accounts. It means the meaning of debiting a real account is different from that of debiting a nominal account. Debit and credit are important foundation for understanding and learning book-keeping. That is why a separate chapter is included in this book. Once a reader understands and remembers the meaning of debit and credit for the three types of accounts (real, personal and nominal), making of journal entries will be simple exercise.
•Debiting an account means there is an increase under the asset head.
•The firm has acquired more of an asset category.
•Crediting an account means there is a decrease under the asset head.
•The firm has disposed off some portion of the asset in that category.
Popular rule for real accounts
•Debit what comes in
• Credit what goes out
Debit-Credit Meaning – Personal Accounts
•Debiting a personal account means that person has received a benefit from the firm.
•He has to pay the firm in future.
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•Crediting a personal account means that the person has given some benefit to the firm.
•The firm has to pay him in the future.
Popular rule for personal accounts
•Debit the receiver
• Credit the giver
Debit-credit meaning for nominal accounts
•Crediting a nominal account means that revenue is earned by the firm under that account head.
•Debiting a nominal account means that an expenditure is incurred by the firm under that account head.
•Normally revenue accounts receive credit.
•Expenditure accounts receive debit
Popular rule for nominal accounts
•Debit expenses and losses
• Credit incomes and profits
Use of the debit and credit terms are described in the chapter of Journal. Journal - Analyzing and Posting Transactions in Journal
More Knols on the topic
Basic Accounting Concepts 2 - Debits and Credits
What are 'Debits and Credits' in the bookkeeping system?
How do you apply "Debits and Credits" in bookkeeping?
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