Debits and credits form the foundation of basic accounting. These terms help define double-entry accounting. As an accountant, every transaction you post involves debits and credits. Many people have trouble grasping the rules for debits and credits. Here are some tricks to understand debits and credits.
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The rules that stays the same
Debits and credits are confusing, because some rules change- and other don’t. So, let’s first consider two rules that never change…..
Debits are always on the left; credits are always on the right
Total debits must always equal total credits
Period. End of story.
Now, that statement may sound strange. But it makes sense when you consider that most of the other rules about debits and credits change. The other rules change; depending on what type of account is involved.
A key tool to understand these other debit and credit rules is to use t-accounts. Let’s use the cash account as an example. Draw a T. Write “cash” at the top, “debt” on the bottom left (just below the horizontal line) and “credit” on the right. Your t-account will look something like this: