Rules of Debit and Credit (Equation Based)

Dual aspect concept in accounting implies that every accounting

transaction would be expressed by a debit amount and an equal
and opposite credit amount. Thus, the rule that for each
transaction debit amount must equal the credit amount has
absolutely no exception. The equality of debits and credits may
be expressed in the form of an equation:
Debit = Credit
In the previous article we discussed accounting equation:
A-L = P
i.e., Assets-Liabilities = Proprietor's Funds or Capital
If each account was to be considered in isolation it would make
no difference whether increases were recorded on the debit side
or on the credit side but since the accounts are inter-dependent
therefore a system of recording increases and decreases on the
two sides had to be fixed. Traditionally or conventionally
increases in asset accounts are recorded on the debit side while
increases in liabilities and capital are recorded on the credit side.
The above rule ensures that when account balances are totaled
will confirm to the accounting equation discussed above.
It gives rise to the following rules: .
1. Increases in asset accounts are debits, decreases are credits.
2. Increases in liability accounts are credits, decreases are debits.
3. Increases in Owner's equity accounts are credits, decreases are
debits.
Total classes of accounts maintained by any business will
include the accounts relating to expenses, losses, revenues and
profits in addition to assets, liabilities and proprietor's funds.
Rules of debit and credit regarding assets, liabilities and capital
have been stated above and the rules for expenses / losses and
revenues/ profits can be derived from the same.
4. Increases in expenses/ losses accounts are debits.
Since the expenses and losses when incurred and suffered lead
to reduction in the capital and ecreases in owner's equity
accounts are debits, therefore increases in expenses and losses
accounts are Debits.
5. Increases in revenues/ profit accounts are credits.
Since the revenues and profits when earned will lead to increase
in the capital and increase in owner's equity accounts are credits,
therefore increases in revenue and profits accounts are credits.
The rules of debit and credit discussed above are based on
accounting equation technique. Traditional rules of debit and
credit are based on classification of accounts. These rules in
practice give the same
results and operate in the same manner. These merely stale the
position in a different way