Which side of an account do we use to record an increase, and why does it depend on the kind of item?
State and apply the rules of debit and credit for each of the five elements
A simple answer to the N(A)-Level Principles of Accounts outcome on debit and credit rules. What debit and credit mean, the rule for each of the five elements, and the DEAD CLIC memory aid for recording increases.
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What this dot point is asking
SEAB wants you to state the rules of debit and credit and to apply them to each of the five elements. This is the single most important skill in the subject: every journal, ledger and statement depends on choosing the right side. The central insight is that debit and credit are just the left and right sides of an account, and which side records an increase depends entirely on what kind of item the account is.
The answer
Debit and credit are sides, not values
Every account is drawn as a "T". The left side is the debit side and the right side is the credit side. That is all the words mean. A debit is not "bad" and a credit is not "good"; a debit is not "money out" and a credit is not "money in". The effect depends on the element.
The rule for each element
| Element | Increase recorded by | Decrease recorded by | Normal balance |
|---|---|---|---|
| Asset | Debit | Credit | Debit |
| Expense | Debit | Credit | Debit |
| Liability | Credit | Debit | Credit |
| Income | Credit | Debit | Credit |
| Owner's equity (capital) | Credit | Debit | Credit |
So increases in assets and expenses are debits; increases in liabilities, income and capital are credits.
The DEAD CLIC memory aid
A common way to remember the rule:
- DEAD: Debit records increases in Expenses, Assets and Drawings.
- CLIC: Credit records increases in Liabilities, Income and Capital.
Drawings sit with the debits because, like an expense, they reduce the owner's equity. Every transaction debits at least one account and credits another for the same total.
Examples in context
Example 1. A cash sale. When a shop makes a cash sale of \80\, and sales (income) rises, so sales is credited \80$. The debit here is money coming in, which shows clearly that "debit" does not mean money out; it simply records the increase in the asset.
Example 2. Paying off a supplier. A business owes a supplier \600\, and bank (an asset) decreases, so bank is credited \600$. Here a debit records a fall in a liability and a credit records a fall in an asset, proving again that the effect depends on the element.
Try this
Q1. State the side used to record an increase in a liability. [1 mark]
- Cue. The credit side, because increases in liabilities are credits.
Q2. A business receives \2,000$ rent from a tenant (rent received). State the debit and credit. [2 marks]
- Cue. Debit Cash or Bank \2,000\ (income up).
Q3. Explain why debiting the cash account does not mean cash has left the business. [2 marks]
- Cue. Cash is an asset and a debit increases an asset, so debiting cash records cash coming in, not going out.
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original6 marksState whether each account is debited or credited to record the change: (a) cash received from a sale; (b) rent paid; (c) goods bought on credit (purchases); (d) a loan received; (e) capital paid in; (f) a customer pays the amount they owe.Show worked answer →
(a) Cash received: cash (asset) increases, so debit cash.
(b) Rent paid: rent (expense) increases, so debit rent.
(c) Purchases on credit: purchases (an expense/asset) increases, so debit purchases (and credit the supplier).
(d) Loan received: loan (liability) increases, so credit the loan account.
(e) Capital paid in: capital (owner's equity) increases, so credit capital.
(f) Customer pays: the receivable (asset) decreases, so credit the customer's account (and debit cash or bank).
What markers reward: the correct side for each, with debits used for increases in assets and expenses, and credits used for increases in liabilities, income and capital.
Original4 marksExplain what the words 'debit' and 'credit' mean in bookkeeping, and why a debit is not the same as 'money out'.Show worked answer →
In bookkeeping, debit simply means the left side of an account and credit means the right side. They are positions, not values.
A debit is not the same as "money out". A debit increases assets and expenses but decreases liabilities, income and capital. For example, receiving cash is a debit to cash (an increase in an asset), which is money coming in, not out. Whether a debit means an increase or a decrease depends on the kind of account.
What markers reward: defining debit and credit as the left and right sides of an account, and making clear that the effect (increase or decrease) depends on the element, so debit does not mean money out.
Related dot points
- Classify accounts into the five elements: assets, liabilities, owner's equity, income and expenses
A simple answer to the N(A)-Level Principles of Accounts outcome on the five elements. What each element means, how to decide which element an account belongs to, and why this choice drives the debit and credit rule.
- Record transactions in T-accounts, showing the date, the other account and the amount on each side
A simple answer to the N(A)-Level Principles of Accounts outcome on T-accounts. How a T-account is laid out, how to enter the dual effect of a transaction, and how to name the other account in each entry.
- Balance off ledger accounts and bring down the balance, identifying it as a debit or credit balance
A simple answer to the N(A)-Level Principles of Accounts outcome on balancing accounts. How to total each side, insert the balance carried down, bring it down for the next period, and say whether it is a debit or credit balance.
- State and apply the accounting equation: assets equal liabilities plus owner's equity
A simple answer to the N(A)-Level Principles of Accounts outcome on the accounting equation. The equation assets equal liabilities plus owner's equity, the dual effect of transactions, and how the equation stays in balance after each one.