Rules of Debits and Credits
Rules of debits and credits
- Decreases in stockholders' equity accounts are debits; increases are credits.
Exhibit 6: Rules of debit and credit
The debit and credit rules for expense and Dividends accounts and for revenue accounts follow logically if you
remember that expenses and dividends are decreases in stockholders' equity and revenues are increases in
stockholders' equity. Since stockholders' equity accounts decrease on the debit side, expense and Dividend accounts
increase on the debit side. Since stockholders' equity accounts increase on the credit side, revenue accounts
increase on the credit side. The last three debit and credit rules are:
- Decreases in revenue accounts are debits; increases are credits.
- Increases in expense accounts are debits; decreases are credits.
- Increases in Dividends accounts are debits; decreases are credits.
In Exhibit 6, we depict these six rules of debit and credit. Note first the treatment of expense and Dividends
accounts as if they were subclassifications of the debit side of the Retained Earnings account. Second, note the
treatment of the revenue accounts as if they were subclassifications of the credit side of the Retained Earnings
account. Next, we discuss the accounting cycle and indicate where steps in the accounting cycle are discussed in
Chapters 2 through 4.
Source: James Don Edwards and Roger H. Hermanson, https://s3.amazonaws.com/saylordotorg-resources/wwwresources/site/wp-content/uploads/2012/10/Accounting-Principles-Vol.-1.pdf
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