To decide a debit and a credit, name the two accounts, classify each one, decide whether each goes up or down, then apply the rule for that type. This lesson is part of double entry and ledgers.
What is the rule for each type of account?
Learn one line per type, then let the classification do the work.
| Account type | Increase | Decrease |
|---|---|---|
| Asset (cash, stock, debtors) | Debit | Credit |
| Expense (rent, wages) | Debit | Credit |
| Liability (creditors, loans) | Credit | Debit |
| Capital | Credit | Debit |
| Income (sales, discount received) | Credit | Debit |
| Drawings | Debit | Credit |
The left side of the accounting equation (assets) and expenses behave alike. The right side (liabilities and capital) and income behave alike.
Worked example: three transactions
Ravi starts a stationery shop. Decide the entry for each transaction.
1. Ravi pays RM8 000 into the business bank account. Accounts: Bank (asset) rises, Capital rises. Debit Bank RM8 000, credit Capital RM8 000.
2. He buys goods for RM2 500 on credit from Suria Trading. Accounts: Purchases (an expense-type account for goods bought for resale) rises, and he now owes Suria Trading, so a liability rises. Debit Purchases RM2 500, credit Suria Trading RM2 500.
3. He pays RM600 rent by cheque. Accounts: Rent (expense) rises, Bank (asset) falls. Debit Rent RM600, credit Bank RM600.
Check each entry by asking whether total debits equal total credits. Here RM8 000 = RM8 000, RM2 500 = RM2 500 and RM600 = RM600.
The mistake that costs marks
The usual slip is to treat the word “bank” or “cash” as a signal to debit it, thinking “money is involved, so I debit money”. That works for receipts and fails for payments.
| Step | Wrong | Right |
|---|---|---|
| Classify Bank in transaction 3 | Skipped | Asset |
| Does Bank rise or fall? | Not asked | Falls, cheque paid |
| Entry | Debit Bank, credit Rent | Debit Rent, credit Bank |
The wrong entry reverses both sides, so the trial balance can still balance. The error is invisible until someone checks the bank statement.
Check yourself
Decide the entries. (a) Ravi sells goods for RM1 200 on credit to Hana. (b) Ravi takes RM300 cash from the till for his own use.
Answer
(a) Hana now owes the business, so Hana (a debtor, an asset) rises. Sales (income) rises. Debit Hana RM1 200, credit Sales RM1 200.
(b) Drawings rises and Cash falls. Debit Drawings RM300, credit Cash RM300. Drawings is not an expense, so it never reaches the profit calculation.
What to study next
Move on to posting journal entries to ledgers, then practise with the debit-credit transaction trainer. Log any repeated slips in the mistake log.
If you want a teacher to hear your reasoning as you choose each side, see online one-to-one Accounting tuition.