1. The Accounting Principle of Duality
 
The entire financial accounting framework rests on the Duality Principle. This principle states that every single economic transaction impacts a business in at least two distinct, opposing ways. A business cannot receive an asset without giving up something else or creating an obligation.
This duality ensures that the fundamental accounting equation (Assets = Liabilities + Equity) always remains in perfect balance after every transaction.
 
2. Debits and Credits Demystified
The terms “Debit” (Dr.) and “Credit” (Cr.) originate from the Latin words debere (to owe) and credere (to entrust). In modern accounting, they do not mean “increase” or “decrease,” nor do they mean “good” or “bad.” They simply refer to positions:
  • Debit (Dr.): The left side of an accounting entry or ledger account.
  • Credit (Cr.): The right side of an accounting entry or ledger account.

3. Classification and Permanent Normal Balances
To record transactions accurately, you must understand the rules of increases and decreases for each element. Every account has a “normal balance,” which is the side that increases the account.
+-------------------+--------------------+--------------------+--------------------+

| Account Category  | Normal Balance     | Debit Rule (Dr.)   | Credit Rule (Cr.)  |
+-------------------+--------------------+--------------------+--------------------+

| Assets            | Debit              | Increase           | Decrease           |
+-------------------+--------------------+--------------------+--------------------+

| Expenses          | Debit              | Increase           | Decrease           |
+-------------------+--------------------+--------------------+--------------------+

| Dividends / Draws | Debit              | Increase           | Decrease           |
+-------------------+--------------------+--------------------+--------------------+

| Liabilities       | Credit             | Decrease           | Increase           |
+-------------------+--------------------+--------------------+--------------------+

| Equity / Capital  | Credit             | Decrease           | Increase           |
+-------------------+--------------------+--------------------+--------------------+

| Revenues / Income | Credit             | Decrease           | Increase           |
+-------------------+--------------------+--------------------+--------------------+

Memory Anchor: Use the acronym DEAD CLIC.
Debit: Expenses, Assets, Dividends.
Credit: Liabilities, Income, Capital.
PreviousNext