Every transaction touches at least two things. When you buy stock for cash, your stock goes up and your cash goes down. Double-entry bookkeeping simply writes down both sides, every time. Because both sides are always recorded, the books check themselves: total debits must equal total credits.
Debit and credit are just left and right
Forget the everyday meanings for a moment. In bookkeeping:
- Debit (Dr) is the left side of an account.
- Credit (Cr) is the right side.
Whether a debit increases or decreases an account depends on the type of account. That is where the golden rules come in.
The three golden rules
Indian commerce classes teach accounts in three groups, each with its own rule.
| Type of account | Examples | Debit | Credit |
|---|---|---|---|
| Personal | Customers, suppliers, banks, the owner's capital | The receiver | The giver |
| Real | Cash, stock, furniture, building | What comes in | What goes out |
| Nominal | Rent, salary, discount, commission, interest | All expenses and losses | All incomes and gains |
The traditional bahikhata used the same idea for personal accounts: naam for the receiver, jama for the giver.
Worked examples from a kirana shop
1. Owner starts the shop with ₹2,00,000 cash.
- Cash comes in, so debit Cash (real account).
- The owner gives the money, so credit Capital (personal account).
2. Buys stock worth ₹80,000 on credit from Gupta Traders.
- Stock comes in, so debit Purchases.
- Gupta Traders is the giver, so credit Gupta Traders.
3. Sells goods for ₹12,000 cash.
- Cash comes in, so debit Cash.
- Sales is income, so credit Sales.
4. Sells goods worth ₹5,000 on credit to Mehta ji.
- Mehta ji is the receiver, so debit Mehta ji. This is udhaar.
- Credit Sales.
5. Pays shop rent of ₹15,000 by UPI.
- Rent is an expense, so debit Rent.
- Money goes out of the bank, so credit Bank.
6. Mehta ji pays ₹3,000.
- Cash comes in, so debit Cash.
- Mehta ji is the giver, so credit Mehta ji. He now owes ₹2,000.
The accounting equation: the modern way to think about it
Modern accounting summarises everything in one line:
Assets = Liabilities + Capital
- Assets are what the business owns or is owed: cash, bank, stock, udhaar from customers, equipment.
- Liabilities are what it owes others: suppliers, loans.
- Capital is what belongs to the owner.
Income increases capital and expenses reduce it. With that in mind, the modern rule is: assets and expenses increase on the debit side; liabilities, capital and income increase on the credit side. It gives exactly the same answers as the golden rules.
From entries to a trial balance
At the end of a period, add up every account and list its balance in two columns: debit balances and credit balances. This list is a trial balance. If the two columns are not equal, something was recorded on one side only.
A trial balance that agrees does not prove every entry is right. An entry posted to the wrong customer, or one left out completely, will still balance. That is why regular reconciliation with bank statements and customer confirmations matters.
Do you need full double entry?
- A small shop can run well on a khata for customers and suppliers plus a daily cash book. That covers most of what the owner needs to see.
- A GST-registered business, a company or anyone seeking a bank loan usually needs full double-entry accounts, because GST returns, income-tax returns and lenders expect a profit and loss account and balance sheet. Accounting software or a bookkeeper handles this.
If you are unsure which you need, our expert desk can connect you with a qualified accountant.
Common questions
What are the golden rules of accounting?
Personal account: debit the receiver, credit the giver. Real account: debit what comes in, credit what goes out. Nominal account: debit all expenses and losses, credit all incomes and gains.
Is udhaar a debit or a credit?
When you give goods on credit, the customer's account is debited because the customer is the receiver. When the customer pays, their account is credited.
This guide is general information to help you understand the topic. It is not legal, tax or financial advice. Rules and rates change; confirm details for your situation with a qualified professional or the official government portal. Read our editorial policy.