As you know, accounting has five types of accounts (i.e. Assets, Expenses, Income, Liabilities and Capital), we debit and credit when there is increase or decrease in Assets, Expenses, Income, Liabilities and Capital.
We Debit when there is:
- an increase in Assets
- an increase in Expenses
- a decrease in Income
- a decrease in liabilities
- a decrease in Capital
We Credit when there is:
- a decrease in Assets
- a decrease in Expenses
- an increase in Income
- an increase in liabilities
- an Increase in Capital
Procedure of debiting and crediting accounts
- Find out which are the two or more accounts involved in the transaction
- Find out which type of accounts these are
- Find out either there is an increase or a decrease in these accounts
EXAMPLE No.1
Transaction: Started business with cash $50,000
In this transaction:
1) There are two accounts involved Cash and Capital
2) Types of accounts are Cash=Asset and Capital=Capital or owner equity
3) There is an increase in Cash and Increase in Capital
Therefore, the double entry should be:
| DESCRIPTION | DEBIT | CREDIT |
| Cash | $50,000 | |
| Capital | $50,000 | |
EXAMPLE No.2
Transaction: Purchased machinery for cash $50,000
In this transaction:
1) There are two accounts involved Machinery and Cash
2) Types of accounts are Cash=Asset and Machinery=Asset
3) There is a decrease in Cash and an Increase in Machinery
Therefore, the double entry should be:
| DESCRIPTION | DEBIT | CREDIT |
| Machinery | $50,000 | |
| Cash | $50,000 |
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