Debits and Credits Rule

Some of you have taken formal accounting courses and know the debit/credit rules backward, forward & inside out. But the bulk of you have “fell into” a bookkeeping role when your real profession was a butcher, baker or a candlestick maker.

Quite simply there are 5 account types and each one can go up or down as follows.

Account Type      To increase this account       To decrease this account

Asset                                                                  Debit                                        Credit

Liability                                                              Credit                                       Debit

Equity                                                                 Credit                                       Debit

Income                                                               Credit                                       Debit

Expenses                                                            Debit                                        Credit

Or use the cheats guide to debits and credits

D E A D   C L I C

This acronym stands for Debit Expenses, Assets and Drawings, and Credit Liabilities, Income and Capital.

You apply this DEAD CLIC rule if an account goes up in value. If an account goes down value, you apply the opposite. In other words, if an expense increases in value, then you debit the account (because the DEAD CLIC rule says to Debit Expenses). If an expense decreases in value, then you credit the account.

Remember also that every transaction affects two accounts, one is a debit, the other a credit. This is why we call it double entry (not single entry) bookkeeping.

Do you need to know this stuff? Well not if you use MYOB software. Does it help to know – most certainly it does even if it means just having a better understanding of what your accountant is preaching on about.