In our last post, we explored the basics of Double-Entry Accounting. Now, let’s go deeper and understand the two key terms you’ll see everywhere in accounting: Debit and Credit.
These two are the building blocks of any financial transaction—but they’re often misunderstood. Don’t worry. We’ll simplify them with examples anyone can relate to.
📌 Why Debit and Credit Matter
In double-entry accounting, every transaction affects two accounts:
* One account is debited
* One account is credited
This keeps your books balanced and helps you understand not just where money is going, but why it’s moving in the first place.
🔍 The Simple Rule
* Debit = What you receive
* Credit = What you give
That’s it. This rule works for most cases and helps you determine the logic behind any entry.
📖 Real-Life Examples (You Can Relate To)
🔹 Example 1: Buying a Phone for Business (₹20,000 in Cash)
* Debit: Mobile Phone (you gained an asset)
* Credit: Cash (you paid money)
🔹 Example 2: Earning Freelance Income (₹5,000)
* Debit: Cash or Bank (you received money)
* Credit: Income or Revenue (you earned it)
🔹Example 3: Paying Rent (₹10,000)
* Debit: Rent Expense (you used a service)
* Credit: Cash or Bank (you gave money)
Each time, something is received (debit), and something is given (credit).
💼 Common Account Types and How They Work
✅ Pro Tip: If you know the type of account, you can easily decide whether to debit or credit it.
📊 Still Confused? Use This Analogy
Think of Debit and Credit like a seesaw.
* When one side goes up, the other goes down—but the balance is always equal.
* Money coming in is one part of the story. You must also track where it came from or what you got in return.
That’s the power of balanced books.
🧠 Why It Matters for You
Even if you’re not an accountant, knowing how debit and credit work helps you:
* Understand your spending and earnings
* Keep accurate records for your small business
* Avoid confusion when using accounting software or Excel sheets
* Prepare for audits, taxes, or investor reports with confidence
📝 Final Thought
Learning debit and credit is the first step to mastering financial discipline. Whether you’re managing personal finances, freelancing, or building a startup, these concepts help you stay in control of your money.
“Money moves every day. Knowing how to track it the right way gives you financial clarity.”
📘 Coming Up Next
Part 3: Types of Accounts in Accounting – Real, Personal & Nominal (Explained Simply)
Learn how to classify your transactions correctly and why it makes a big difference in your bookkeeping.
Stay tuned to Meghna's Exploration for more practical insights in this finance series.
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