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Debit/Credits

Debit accounts are:


Assets

Expenses


To increase a debit account a debit is required; to decrease it a credit is required.


Credit accounts are:


Liabilities

Revenue

Owners equity/Retained earnings/Surplus of funds


To increase a credit account a credit required; to decrease it a debit is required.


Exceptions to this rule are contra accounts.



Example:


A sale is made for $5 cash. Cost of good sold was $3. Two things are happening:


Cash is received and revenue is increasing.


Inventory is decreased and inventory expense is increased.


The following entries required:


Dr. Cash $5

Cr. Revenue $5


Cash is debit account and debiting it will show increase of $5.

Revenue is credit account, crediting this account will increase revenue by $5.


Dr. Inventory Expense $3

Cr. Inventory $3


Inventory expense is a debit account. Debiting it will increase our expense incurred by $3.

Inventory is an asset account. Crediting it will decrease this account by $3 to reflect lesser amount of inventory on hand.

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