Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

Double-Entry Bookkeeping Rules: How to Debit and Credit Accounts

Updated 11 October 2026 · Fact-checked

Double-entry bookkeeping records every transaction twice: a debit in one account and an equal credit in another. To solve a question, identify the two accounts affected, decide whether each is an asset, liability, equity, income or expense, then apply the debit and credit rules. Total debits always equal total credits.

Understand Double-Entry Bookkeeping Rules: Debits and Credits

Every transaction has two sides. If a business buys a machine for cash, it gains a machine and loses cash. This is the dual aspect concept: each transaction affects at least two accounts, and the effects balance.

Double entry records both sides. One side is a debit (Dr) and the other is a credit (Cr). Debit means the left side of an account. Credit means the right side. They do not mean 'increase' or 'decrease'. Whether a debit increases or decreases an account depends on the type of account.

The rules follow the accounting equation: Assets = Liabilities + Equity. Assets sit on the left of the equation, so a debit increases them. Liabilities and equity sit on the right, so a credit increases them. Expenses reduce equity, but they are recorded with a debit because they are costs. Income increases equity, so it is recorded with a credit.

A simple routine works every time. Ask: what has come in, and what has gone out or been owed? The account that receives value is usually debited. The account that gives value, or the source of the obligation, is credited.

In the exam you also need to know the effect on the ledger. After all entries are posted, the total of debit balances equals the total of credit balances. This is the basis of the trial balance.

Key formulas to remember

Accounting equation: Assets = Liabilities + Equity; Every transaction keeps this equation in balance.
Debit and credit rule for assets and expenses: Increase = Debit; Decrease = Credit; Applies to asset accounts and expense accounts. Drawings also follow this rule.
Debit and credit rule for liabilities, equity and income: Increase = Credit; Decrease = Debit; Applies to liabilities, capital, retained earnings and income accounts.
Dual aspect: Total debits = Total credits; Each transaction has equal debit and credit amounts.

How to solve Double-Entry Bookkeeping Rules: Debits and Credits questions

Use this method for any question asking which account to debit or credit, or asking for the effect of a transaction.

1Read the transaction and list what happened in plain words, for example 'bought goods on credit'.
2Identify the two (or more) accounts affected, such as inventory or purchases and payables.
3Classify each account as asset, liability, equity, income or expense.
4Decide whether each account goes up or down.
5Apply the rule: assets and expenses go up with a debit; liabilities, equity and income go up with a credit. Reverse for decreases.
6Check that total debits equal total credits.
7Match your answer to the option or fill in the amount and the Dr or Cr labels exactly as asked.

Quickest way: Money in, money out shortcut

When to use it: Use this in Section A when you have about three minutes per question or less and the transaction is a standard one.

Ask what the business received. Debit that account (an asset or an expense).
Ask what the business gave up or owes. Credit that account (cash, payables, capital or income).
For a sale, credit sales and debit cash or receivables.
For a payment of an expense, debit the expense and credit cash or bank.
Quick check: assets and expenses sit on the debit side; liabilities, equity and income sit on the credit side.

Common mistakes in Double-Entry Bookkeeping Rules: Debits and Credits

Thinking debit always means increase and credit always means decrease.
Bank statements use the words differently, so the everyday meaning sticks.
Fix: Remember the rule depends on the account type. A credit increases a liability but decreases an asset.
Debiting the wrong side of the bank account when money is paid in.
Students copy the bank's viewpoint, where a deposit is a credit.
Fix: In your own books, the bank is an asset. Cash received is a debit to bank; cash paid out is a credit.
Debiting income and crediting expenses.
Students link 'income' with good news and want to debit it.
Fix: Income increases equity, so credit it. Expenses reduce equity but are recorded as debits.
Posting only one side of the entry.
Students rush and forget the dual aspect.
Fix: Always write both lines and check the totals agree before choosing your answer.
Treating drawings as an expense or a credit.
Drawings reduce capital, so students assume they behave like a liability.
Fix: Drawings are debited when the owner takes cash or goods, and they reduce equity.
Debiting purchases for a non-current asset bought on credit.
Students link 'purchase' with the purchases account.
Fix: Purchases is only for goods bought for resale. Debit the asset account, such as plant or equipment, instead.

Worked examples

Example 1

A business buys goods for resale costing $4,000 on credit from a supplier. Which entry is correct? A) Dr Payables $4,000, Cr Purchases $4,000 B) Dr Purchases $4,000, Cr Payables $4,000 C) Dr Purchases $4,000, Cr Cash $4,000 D) Dr Cash $4,000, Cr Payables $4,000

Show the solution

Transaction in words: goods received, and a debt to the supplier created.
Accounts affected: purchases (an expense of the trading business) and payables (a liability).
Purchases increase, and an expense increases with a debit.
Payables increase, and a liability increases with a credit.
The payment is on credit, so cash is not involved, which removes options C and D.
Option A reverses the sides, so it is wrong.

Answer: B) Dr Purchases $4,000, Cr Payables $4,000

Example 2

On 1 March a sole trader starts a business by paying $20,000 into a business bank account. On 5 March the business buys a vehicle for $12,000 paid by bank, and on 10 March pays $500 rent from the bank. State the entries and the resulting bank balance.

Show the solution

1 March: the business receives cash and the owner's investment creates capital. Dr Bank $20,000, Cr Capital $20,000.
5 March: a vehicle (asset) is gained and bank decreases. Dr Vehicles $12,000, Cr Bank $12,000.
10 March: rent is an expense and bank decreases. Dr Rent expense $500, Cr Bank $500.
Bank account: debit side $20,000; credit side $12,000 + $500 = $12,500.
Balance = $20,000 − $12,500 = $7,500 debit.
Check total debits: $20,000 + $12,000 + $500 = $32,500. Total credits: $20,000 + $12,000 + $500 = $32,500. They agree.

Answer: Bank has a debit balance of $7,500. Entries: Dr Bank/Cr Capital $20,000; Dr Vehicles/Cr Bank $12,000; Dr Rent/Cr Bank $500.

Exam tips

In multiple choice questions, check the debit and credit sides in each option before reading the rest. Many wrong options only swap the sides.
For number entry, read whether the answer should be a debit or credit balance and give the label if asked. Do not enter a negative figure unless told to.
In multiple response questions, select exactly the stated number of options. Work out the entries yourself first, then match them.
Watch for transactions that sound like expenses but are assets, such as buying equipment, or ones that look like income but are liabilities, such as money received in advance.
Always check that both sides use the same amount. A quick total check catches most slips.

Practice questions from Double-entry bookkeeping principles including the maintenance of accounting records

Double-Entry Bookkeeping Rules: Debits and Credits in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Double-Entry Bookkeeping Rules: Debits and Credits: frequently asked questions

What is the dual aspect concept?

It says every transaction has two effects on the business, so it must be recorded in at least two accounts. The debit and credit amounts are equal. This keeps the accounting equation in balance.

How do I decide which account to debit and which to credit?

Identify the accounts affected and classify each one. Debit increases in assets and expenses, and decreases in liabilities, equity and income. Credit increases in liabilities, equity and income, and decreases in assets and expenses.

Why is an expense a debit when it reduces profit?

Expenses are recorded as debits because they reduce equity, which normally has a credit balance. A debit to an expense is the same as a reduction in equity. At the year end, expenses are transferred to profit or loss, where they reduce profit.

Does the trial balance prove the ledger is correct?

No. It only proves that total debits equal total credits. Some errors, such as posting to the wrong account or omitting a whole transaction, still leave it balanced.