In the rest of this discussion, we shall use the terms debit and credit rather than left and right. In practice, the term debit is denoted by “Dr” and the term credit is denoted by “Cr”. The left hand side is commonly referred to as debit side and the right hand side is commonly referred to as credit side. Let’s see in detail what these fundamental rules are and how they work while a business entity maintains and updates its accounting records under a double entry system.Ī ledger account (also known as T-account) consists of two sides – a left hand side and a right hand side. The rules of debit and credit determine how a change affected by a financial transaction can be updated in a journal and then applied to accounts in ledger. In accounting, a change in financial position essentially signifies an increase or decrease in the balances of two or more accounts or financial statement items. In article “business transaction”, we have explained that an event can be journalized as a valid financial transaction only when it explicitly changes the financial position of an entity.

The debit and credit rules are the heart of accounting and their understanding is extremely important for any individual involved in accounting system of a business entity. Since the accounting cycle starts with a journal comprising of debit and credit entries, the use of a double entry accounting is not possible without strict adherence to these rules. The rules of debit and credit (also referred to as golden rules of accounting) are the fundamental principles of modern double entry accounting that guide accountants and bookkeepers in journalizing financial transactions and updating ledger accounts of a business entity.

Application of rules of debit and credit.

Expense debit credit