Debit and credit: which one is an increase and which one is a decrease?

Q: What is an easy way to remember it?

First ask: is this account something we have (asset) or a debt/source (liability)? If what we have increases, debit. If a debt increases, credit. In every journal entry, the debit amount = the credit amount. If they are not equal, there is an error.

You have probably heard that "debit means money in, credit means money out". Unfortunately, that is only half true. Everything depends on whether the account is an asset or a liability account.

What is the rule?

Account type	Debit	Credit
Asset (cash, goods, equipment)	increases	decreases
Liability (debts, equity)	decreases	increases
Expense accounts	increases	closed
Income accounts	closed	increases

Why is it so?

The two sides of the balance sheet are always equal: what the company has (assets) came from somewhere (liabilities and equity). Every transaction is recorded in the debit of one account and the credit of another for the same amount. That is why the balance is never broken.

Two real-life examples

1. Cash was withdrawn from the bank into the till. Cash in the till increased (asset, debit), money in the bank account decreased (asset, credit): Dt 5010 – Ct 5110.

2. A debt to a supplier was paid. The debt decreased (liability, debit), money in the bank decreased (asset, credit): Dt 6010 – Ct 5110.

What is an easy way to remember it?

First ask: is this account something we have (asset) or a debt/source (liability)?
If what we have increases, debit. If a debt increases, credit.
In every journal entry, the debit amount = the credit amount. If they are not equal, there is an error.

Test yourself

5 questions on this topic: pick an option or reveal the answer.

At "Beshariq kulol" LLC, the credit turnover of 9010 for the reporting period was 120 000 000 soum, and 7 500 000 soum for returned finished products was collected on the debit of 9040 "Returns of goods (products) sold". There are no other entries. What amount is closed from 9010 to 9910 at period end?

Which accounts are shown on the debit when dividends are accrued under row 1 of the table in paragraph 285 of NAS No. 21 ("Accrual of dividends to shareholders"; credit 6610)?

At the start of the month a company had a credit balance of 9 000 000 soum on 6410. During the month taxes totalling 14 000 000 soum were assessed (credit of 6410), 9 000 000 soum was paid to the budget, and 3 500 000 soum of VAT in 4410 was offset (Dt 6410 Ct 4410). What is the balance of 6410 at the end of the month?

"Kitob sabzavot" LLC paid its tax debt to the budget out of a short-term bank loan: the bank transferred the money directly to the budget rather than to the company's settlement account. What journal entry is made?

A bank granted the company a short-term loan, and the loan money was transferred directly to a supplier to settle the company's debt to it. Which journal entry is made?

Answered: 0 / 50 of 5 correct

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