Q.If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?
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Start your 14-day free trial to unlock the full solution →Assets have a debit balance, so an increase is debited and a decrease is credited. Liabilities have a credit balance, so an increase is credited and a decrease is debited. Therefore: decrease in an asset = credit; decrease in a liability = debit.
The rules applied
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Decrease in an asset — Asset accounts (cash, debtors, stock, machinery, etc.) carry a debit balance. Under the rules of debit and credit, an increase in an asset is recorded on the debit side. A decrease is the opposite effect, and so it is recorded on the credit side of the asset account. Hence a decrease in an asset is recorded as a credit.
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Decrease in a liability — Liability accounts (creditors, bills payable, loans, etc.) carry a credit balance. An increase in a liability is recorded on the credit side, so a decrease in a liability is the opposite and is recorded on the debit side. Hence a decrease in a liability is recorded as a debit.
Summary table
| Item | Normal (balance) side | Increase recorded as | Decrease recorded as |
|---|---|---|---|
| Asset | Debit | Debit | Credit |
| Liability | Credit | Credit | Debit |
Illustration — When a creditor of ₹5,000 is paid in cash, the liability (Creditors) decreases and the asset (Cash) also decreases: …
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