Accounting – Definition – Debits n Credits
You read about the dictionary definition of a debit and credit, which did not seem to help.
Double entry accounting is based on three fundamental rules, known as the “three golden rules” of accounting, which ultimately apply to each and every parts of any transaction you can think of. What are these rules?
- Debit what comes in, credit what goes out
- Debit all expenses and losses, credit all incomes and gains
- Debit the receiver, credit the giver
After reading this, do you think, we need to dig deeper into the definition of debit and credit? I don’t think so.
But then if you read these rules, should one rule apply to one transaction? In fact, if you split these rules, they actually become six in all, three for debit and three for credit. You can actually use any number of these in one transaction, the only caution will be to ensure that the total of all debit items has to be equal to the total of all credit items.
I will cover this in more detail in a future post.
There are some more fundamental things we need to cover, like “ongoing concern” etc., which I will cover in the next post.
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