---
title: "Debit and Credit in Accounting: Rules, T-Accounts & Examples"
description: "Learn debit and credit rules for Personal, Real & Nominal accounts, T-accounts, journal entries, balances, and GST/TDS examples with clarity."
canonical: "https://busy.in/accounting/understanding-debit-and-credit-in-accounting-with-examples/"
author: "Vineet Goyal"
published: "2025-05-12T07:58:36.000Z"
category: "Accounting"
---

-   Debit means the left side of a ledger
-   Credit means the right side of a ledger
-   Every transaction has at least one debit and one credit of equal amount
-   The 3 golden rules help decide which account to debit and which to credit
-   There are three main account types: Personal, Real, and Nominal
-   Debit usually increases assets and expenses
-   Credit usually increases liabilities, capital, and income
-   Ledger balances move into the trial balance
-   In bank statements, the bank and the business record the same event from opposite perspectives
-   GST entries add input and output tax accounts, but the same debit and credit logic still applies
-   BUSY applies debit and credit automatically based on voucher type

# Debit and Credit in Accounting: 3 Golden Rules, T-Accounts & Journal Entries Quick Summary

In accounting, a debit (Dr.) is an entry on the left side of an account, and a credit (Cr.) is an entry on the right side. Every financial transaction involves at least one debit and one credit of equal value. This is the base of the [**double-entry accounting system**](https://busy.in/accounting/double-entry-bookkeeping-system-definition-rules-and-examples/) .

Debits and credits do not always mean "money in" or "money out." Their effect depends on the type of account being recorded.

This guide explains the 3 golden rules of accounting, [**types of accounts**](https://busy.in/accounting/types-of-accounts-in-accounting-and-how-amortization-affects-them/) such as Personal, Real, and Nominal, the T-account format, the standard journal entry format, normal balances, practical examples including GST and TDS entries, the link between ledgers and the trial balance.

## What Are Debit and Credit in Accounting?

Every business transaction has two sides. Something is received and something is given. Accounting records both sides through debit and credit.

A **debit** is the left side of a ledger account.
A **credit** is the right side of a ledger account.

In the double-entry system, every transaction has at least one debit entry and one credit entry, and the total debit amount must always equal the total credit amount. This keeps the basic [**accounting equation**](https://busy.in/accounting/accounting-equation/) in balance:

**Assets = Liabilities + Capital**

It is important to understand what debit and credit do **not** mean.

Debit does not always mean money going out.
Credit does not always mean income coming in.
Their effect depends on the type of account involved.

This is the point that confuses many beginners. Once you understand the account type and apply the right rule, debit and credit become much easier to follow.

## **Types of Accounts: Personal, Real, and Nominal**

Before deciding whether an account should be debited or credited, you first need to identify the type of account.

In Indian accounting, accounts are traditionally grouped into three types: Personal, Real, and Nominal.

### **Personal Accounts**

Personal accounts relate to persons, businesses, institutions, or entities.

They are usually divided into three sub-types:

| Sub-Type | What It Includes | Examples |
| --- | --- | --- |
| Natural Personal | Real human beings | Ramesh Kumar, Priya Sharma |
| Artificial Personal | Companies, banks, LLPs, government bodies | HDFC Bank, Tata Motors Ltd., State Bank of India |
| Representative Personal | Accounts representing a group of persons | Outstanding Salary A/c, Prepaid Insurance A/c, Capital A/c |

Examples in business accounting include Sunita Debtors A/c, HDFC Bank A/c, Sharma Suppliers A/c, and Owner's Capital A/c.

### **Real Accounts**

Real accounts relate to assets. These may be physical assets or intangible assets with recognised value.

| Sub-Type | Examples |
| --- | --- |
| Tangible Real | Cash, Machinery, Land, Furniture, Stock |
| Intangible Real | Goodwill, Patents, Trademarks, Copyright |

Examples include Cash A/c, Machinery A/c, Furniture A/c, and Goodwill A/c.

### **Nominal Accounts**

Nominal accounts relate to expenses, incomes, gains, and losses. They do not represent physical things. At the end of the accounting period, these accounts are usually transferred to the Profit and Loss Account.

Examples include Rent A/c, Salary A/c, Sales A/c, Purchases A/c, Commission Received A/c, Discount Allowed A/c, and Depreciation A/c.

## **The 3 Golden Rules of Accounting**

The 3 golden rules are the basic rules used to decide which account to debit and which to credit.

### **Golden Rule 1: Personal Account**

[**Debit the Receiver, Credit the Giver**](https://busy.in/accounting/golden-rules-of-accounting/)

When a person or entity receives something, debit their account.
When a person or entity gives something, credit their account.

#### **Example 1: Paid cash to Sharma Suppliers**

| Account | Rule Applied | Dr./Cr. |
| --- | --- | --- |
| Sharma Suppliers A/c | Receiver of payment, so debit | Dr. Rs. 50,000 |
| Cash A/c | Goes out, so credit | Cr. Rs. 50,000 |

#### **Example 2: Received cash from Priya Constructions**

| Account | Rule Applied | Dr./Cr. |
| --- | --- | --- |
| Cash A/c | Comes in, so debit | Dr. Rs. 80,000 |
| Priya Constructions A/c | Giver of payment, so credit | Cr. Rs. 80,000 |

### **Golden Rule 2: Real Account**

**Debit What Comes In, Credit What Goes Out**

When an asset comes into the business, debit that asset account.
When an asset goes out of the business, credit that asset account.

#### **Example 1: Purchased furniture for cash**

| Account | Rule Applied | Dr./Cr. |
| --- | --- | --- |
| Furniture A/c | Comes in, so debit | Dr. Rs. 35,000 |
| Cash A/c | Goes out, so credit | Cr. Rs. 35,000 |

### **Example 2: Sold old machinery for cash**

| Account | Rule Applied | Dr./Cr. |
| --- | --- | --- |
| Cash A/c | Comes in, so debit | Dr. Rs. 20,000 |
| Machinery A/c | Goes out, so credit | Cr. Rs. 20,000 |

### **Golden Rule 3: Nominal Account**

**Debit All Expenses and Losses, Credit All Incomes and Gains**

When the business incurs an expense or suffers a loss, debit that account.
When the business earns income or makes a gain, credit that account.

#### **Example 1: Rent paid in cash**

| Account | Rule Applied | Dr./Cr. |
| --- | --- | --- |
| Rent A/c | Expense, so debit | Dr. Rs. 12,000 |
| Cash A/c | Goes out, so credit | Cr. Rs. 12,000 |

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#### **Example 2: Commission received**

| Account | Rule Applied | Dr./Cr. |
| --- | --- | --- |
| Cash A/c | Comes in, so debit | Dr. Rs. 8,000 |
| Commission Received A/c | Income, so credit | Cr. Rs. 8,000 |

## **Quick Reference Table for the Golden Rules**

| Account Type | Sub-Types | Golden Rule | Debit When | Credit When |
| --- | --- | --- | --- | --- |
| Personal | Natural, Artificial, Representative | Debit the Receiver, Credit the Giver | Party receives value, goods, or money | Party gives value, goods, or money |
| Real | Tangible and intangible assets | Debit What Comes In, Credit What Goes Out | Asset comes into the business | Asset leaves the business |
| Nominal | Expenses, incomes, losses, gains | Debit Expenses and Losses, Credit Incomes and Gains | Expense is incurred or loss is suffered | Income is earned or gain is made |

### **Modern Equivalent**

| Account Type | Debit Effect | Credit Effect |
| --- | --- | --- |
| Asset | Increases | Decreases |
| Liability | Decreases | Increases |
| Capital / Owner's Equity | Decreases | Increases |
| Revenue / Income | Decreases | Increases |
| Expense | Increases | Decreases |

## **The T-Account Format: How Ledger Accounts Look**

Every [**ledger account**](https://busy.in/accounting/ledger-in-accounting/) is often shown in a T-account format. The left side is always the debit side, and the right side is always the credit side.

### **Example: Cash Account**

| Dr. Side | Cr. Side |
| --- | --- |
| Capital 2,00,000 | Rent paid 12,000 |
| Sales 50,000 | Furniture 35,000 |
| Commission 8,000 | Sharma Sup. 50,000 |
| Total 2,58,000 | Total 97,000 |
| Closing Balance Dr. 1,61,000 | \- |

### **How to Read a T-Account**

-   All debit entries are written on the left side
-   All credit entries are written on the right side
-   The difference between the two sides is the balance
-   If the debit side is higher, the account has a debit balance
-   If the credit side is higher, the account has a credit balance

### **Why T-Accounts Matter**

T-accounts help you see how a transaction affects each account. They are also useful during ledger posting, trial balance preparation, and audit checking.

## **Standard Journal Entry Format**

A journal is the first entry. Transactions are first recorded in the [**journal**](https://busy.in/accounting/what-is-a-voucher-benefits-types-and-components/) and then posted to the ledger.

A standard journal entry format usually contains the following columns:

| Column | What Goes Here |
| --- | --- |
| Date | The transaction date |
| Particulars | Debited account first, credited account second, and narration below |
| L.F. | Ledger Folio reference |
| Dr. (Rs.) | Amount debited |
| Cr. (Rs.) | Amount credited |

### **Example Journal Format**

| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- | --- | --- |
| 01-04-25 | Cash A/c Dr. | 1 | 2,00,000 | \- |
|  | To Capital A/c | 2 | \- | 2,00,000 |
|  | (Being capital introduced by owner) |  |  |  |
| 05-04-25 | Furniture A/c Dr. | 5 | 35,000 | \- |
|  | To Cash A/c | 1 | \- | 35,000 |

(Being furniture purchased for cash)

## **Normal Balances: Which Side an Account Normally Carries**

Every account has a normal balance. This means the side where it usually stands.

| Account Type | Normal Balance | Why |
| --- | --- | --- |
| Assets | Debit | Assets usually increase through debit |
| Expenses | Debit | Expenses usually increase through debit |
| Drawings | Debit | Drawings reduce capital |
| Liabilities | Credit | Liabilities usually increase through credit |
| Capital | Credit | Capital usually increases through credit |
| Income | Credit | Income usually increases through credit |

A cash account normally carries a debit balance. If it shows a credit balance, that usually indicates an error or an unusual entry.

## **Practical Examples with Journal Entries**

All examples below use Rahul Enterprises as the business name.

### **1\. Owner Introduces Capital in Cash**

Transaction: Rahul introduces Rs. 2,00,000 in cash.

| Account | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- |
| Cash A/c Dr. | 2,00,000 | \- |
| To Capital A/c | \- | 2,00,000 |

(Being capital introduced by the owner)

### **2\. Goods Purchased for Cash**

Transaction: Goods purchased for Rs. 40,000 in cash.

| Account | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- |
| Purchases A/c Dr. | 40,000 | \- |
| To Cash A/c | \- | 40,000 |

(Being goods purchased for cash)

### **3\. Goods Sold on Credit**

Transaction: Goods worth Rs. 60,000 sold to Priya Constructions on credit.

| Account | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- |
| Priya Constructions A/c Dr. | 60,000 | \- |
| To Sales A/c | \- | 60,000 |

### **4\. Rent Paid by Cheque**

Transaction: Paid office rent of Rs. 15,000 by cheque.

| Account | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- |
| Rent A/c Dr. | 15,000 | \- |
| To HDFC Bank A/c | \- | 15,000 |

(Being office rent paid by cheque)

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### **5\. Furniture Purchased for Cash**

Transaction: Purchased office furniture worth Rs. 35,000 in cash.

| Account | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- |
| Furniture A/c Dr. | 35,000 | \- |
| To Cash A/c | \- | 35,000 |

(Being furniture purchased for office use)

## **How Debit and Credit Flow into the Trial Balance**

A [**trial balance**](https://busy.in/accounting/what-is-trial-balance/) is prepared at the end of an accounting period. It lists ledger balances under debit and credit columns.

### **How It Works**

-   Close each ledger account
-   Accounts with debit balance go to the debit column
-   Accounts with credit balance go to the credit column
-   If total debits equal total credits, the trial balance agrees

### **Sample Trial Balance**

| Account | Normal Balance | Dr. (Rs.) | Cr. (Rs.) |
| --- | --- | --- | --- |
| Capital A/c | Credit | \- | 2,00,000 |
| Cash A/c | Debit | 1,61,000 | \- |
| Purchases A/c | Debit | 1,40,000 | \- |
| Sales A/c | Credit | \- | 1,60,000 |
| Furniture A/c | Debit | 35,000 | \- |
| Rent A/c | Debit | 15,000 | \- |
| Salary A/c | Debit | 22,000 | \- |
| Sharma Textiles A/c | Credit | \- | 1,18,000 |
| Priya Constructions A/c | Debit | 59,000 | \- |
| CGST Input A/c | Debit | 9,000 | \- |
| SGST Input A/c | Debit | 9,000 | \- |
| CGST Output A/c | Credit | \- | 4,500 |
| SGST Output A/c | Credit | \- | 4,500 |
| SBI Term Loan A/c | Credit | \- | 5,00,000 |
| SBI Bank A/c | Debit | 5,37,000 | \- |
| **Total** |  | **9,87,000** | **9,87,000** |

A matching trial balance helps confirm arithmetic accuracy, but it does not catch every type of accounting mistake.

## The Bank Statement Confusion

Many people get confused here. When money comes into your bank account, the bank statement may show the amount as "credited." But in your books, your accountant may debit the bank account. Both are correct. [**Bank reconciliation**](https://busy.in/accounting/bank-reconciliation-statement-explained-purpose-format-and-common-errors/) bridges this gap by matching your bank ledger to the bank statement each month.

### **Bank's Perspective**

Your account is a liability for the bank. If you deposit money, the bank owes you more, so the bank credits your account.

### **Your Business Perspective**

Your bank account is an asset in your books. If money comes in, your asset increases, so you debit it.

| Perspective | Money Comes In | Money Goes Out |
| --- | --- | --- |
| Bank | Credits your account | Debits your account |
| Your Books | Debit Bank A/c | Credit Bank A/c |

## **GST-Specific Debit and Credit Entries**

For GST-registered businesses, debit and credit also apply to tax ledgers.

### **GST Accounts and Their Nature**

| GST Account | Account Type | Normal Balance | Meaning |
| --- | --- | --- | --- |
| CGST Input A/c | Asset | Debit | GST paid on purchases |
| SGST Input A/c | Asset | Debit | State GST paid on purchases |
| IGST Input A/c | Asset | Debit | GST paid on inter-state purchases |
| CGST Output A/c | Liability | Credit | GST collected on sales |
| SGST Output A/c | Liability | Credit | State GST collected on sales |
| IGST Output A/c | Liability | Credit | GST on inter-state sales |

## **Debit Note vs Credit Note**

Debit note and credit note are related to accounting entries, but they are not the same as the left-side and right-side meanings of debit and credit in ledger posting.

| Feature | Debit Note | Credit Note |
| --- | --- | --- |
| Issued by | Buyer | Seller |
| Used for | Purchase return, upward revision | Sales return, downward revision |
| Effect | Reduces amount payable to supplier | Reduces amount receivable from customer |

When a buyer issues a debit note, the supplier account is reduced from the buyer's side.
When a seller issues a [**credit note**](https://busy.in/accounting/common-gst-filing-errors-and-solutions/) , the customer account is reduced from the seller's side.

## **Conclusion**

Understanding debit and credit becomes much easier once you know which type of account you are dealing with and which rule applies to it.

The 3 golden rules help you decide which account to debit and which to credit. Once that becomes clear, journal entries, T-accounts, and trial balance preparation all start making sense.

BUSY accounting software helps by applying debit and credit through voucher-based workflows, which reduces manual posting effort and makes day-to-day accounting easier.

## About the author

**Vineet Goyal**

I am a chartered accountant with over 14 years of experience. I understand income tax, GST, and balancing financial records. I analyze financial statements and tax codes effectively. However, I also have a passion for writing, which is different from working with numbers. Recently, I started writing articles and blog posts. My goal is to make finance easier for everyday people to understand.

## Frequently asked questions

### What is the basic rule of debit and credit in accounting?

In accounting, a debit (Dr.) is an entry on the left side of a ledger account and a credit (Cr.) is an entry on the right side. The 3 golden rules determine which account to debit and which to credit: (1) Personal - Debit the Receiver, Credit the Giver; (2) Real - Debit What Comes In, Credit What Goes Out; (3) Nominal - Debit Expenses and Losses, Credit Incomes and Gains.

### Is debit always an expense and credit always income?

No. This is the most common misconception. A debit increases assets and expenses, but it also decreases liabilities and capital. A credit increases liabilities, capital, and revenue,  but also decreases assets. The effect depends on the account type. For example, when you take a bank loan, you debit Bank A/c (asset increases) and credit Loan A/c (liability increases), no expense or income involved.

### Why does my bank say "credited" when money comes in, but my accountant debits the bank account?

Because they are looking from opposite angles. For the bank, your account is a liability. When money comes in, their liability to you increases, so they credit it. For your books, the bank balance is an asset. When money comes in, your asset increases, so you debit it. Both are correct. Bank reconciliation bridges this gap by matching your bank ledger to the bank statement each month.

### How does GST affect debit and credit entries?

GST adds Input Tax (asset - debit normal balance) and Output Tax (liability - credit normal balance) accounts. When you buy goods with 18% GST, you debit Purchases + debit CGST Input + debit SGST Input, and credit the supplier. When you sell goods, you debit the customer and credit Sales + credit CGST Output + credit SGST Output. At month-end, input is set off against output via a journal entry.

### What is the difference between a debit note and a credit note?

A debit note is issued by the buyer when returning goods to a supplier - it debits the supplier's account to reduce the amount owed. A credit note is issued by the seller when accepting returned goods from a customer - it credits the customer's account to reduce what they owe. Under GST, credit notes reduce the seller's output tax liability and must be reported in GSTR-1 Table 9B by 30 November following the relevant financial year.

### What is the difference between journal and ledger in accounting?

The journal is the book of first entry every transaction is recorded here in chronological order with the debit and credit accounts. The ledger is the book of second entry - each account has its own page (T-account) where all journal entries relating to it are posted. The trial balance is extracted from ledger balances to verify that total debits equal total credits.

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