Rule of Dr and Cr

Debit and credit rules are the main root of accounting system. Most of accounting systems depend on the basis of debit and credit rule. The rule of debit and credit seems difficult to understand, those, who are the beginner and non-related person about accounting. According to establish rule, assets, expenses and losses are denoted by debit and capital, liabilities and profit are denoted by credit. Here everybody is getting confusion that expenses and losses are not positive sign for business or other hand assets are positive sign of business but why they are both denoted by debit? Another side lability is not good sign for business and profit is good sign of business, then why they both are denoted by credit. Some confusions are getting regarding this rules.

So, I am going to explain about debit and credit rule, which can be easily understood. 

Every business starts from capital for example we invested 10 euro as capital. At same time this is our assets 10 euro. Debit and credit rule have been started by assuming capital is denoted by credit and assets are denoted by debit. Or debit and credit must be equal in every transaction. So, that we can write here Capital [credit] 10 euro = Assets [Debit] 10 euro. If we buy good by 6 euro, then now Capital[credit]10 euro=Assets [Debit] cash 4 euro + goods 6 euro. If this goods sale in 8-euro then we have, [Credit] Capital 10 euro+ Profit 2 euro = [Debit] Assets 12 euro. So, we can say that if we get profit, our assets will increase that’s why we should put profit in credit side to make equal debit = credit. Again, if those goods sale in 4-euro then we have Capital [credit] 10 euro = [Debit] assets cash 8 euro and loss 2 euro. Then we can say that if we get loss, our asset will be decreased after that to make equal credit =debit, loss should be put in debit side. We know that nature of assets and expenses are same for accounting transaction when we buy assets or paid expenses, cash should be paid, that’s why expenses and assets are applied same rule. When we take loan, our assets [debit] will be increased, then to make equal liability should be put in credit side. So, that we can write [Credit] capital, labilities, income, profit = [Debit] assets, expenses and loss. Again, after more elaborate its form, we can make applied rule for every transaction as following, if [Credit] Capital, Labilities, Income and Profit are increased, should be denoted by credit and if they decrease, should be denoted by debit. And another side if [Debit] assets, expenses, and losses are increased should be denoted by debit, if they decrease, should be denoted by credit. This is the root rule of accounting debit and credit system, which is being applied all over the world who are keeping their account in double entry system.