| Debits and Credits |
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Every commercial transaction is recorded under the double entry system in two accounts. The account that features on the left side is the debit and the other on the right side is the credit. The challenge lies in identifying which items feature as debit and those that are characterized as credit. In the double entry system of book-keeping, every debit transaction should have a corresponding credit transaction.
Identifying the position of every item as a debit or credit depends upon the contemporary accounting approach. This approach comprises of five accounting rules.
Alternatively, there are three conventional accounting rules that include personal accounts, real accounts and nominal accounts. After identifying two or more accounts in a commercial business, it is important to debit at least one of them and credit one of them at the least. Usually, accounts such as dividends, expenses, losses and assets are increased with a debit and accounts like gains, income, liabilities, revenues and stockholders’ equity are increased with a credit.
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