AccountancyCBSE Class 11 · Recording of Transactions - I

Accounting Equation and Rules of Debit and Credit Class 11: Analysis of Transactions

Updated 17 October 2026 · Fact-checked

The accounting equation is Assets = Liabilities + Capital. Every transaction changes at least two items and keeps the equation balanced. Debit and credit follow rules: debit increases assets and expenses and decreases liabilities, capital and income; credit does the opposite. The golden rules are: personal account (debit the receiver, credit the giver), real account (debit what comes in, credit what goes out), nominal account (debit expenses and losses, credit incomes and gains).

Assets sit on the debit side; liabilities, capital and income sit on the credit side, and each entry's total debits equal its total credits.

Illustration drawn for QuestionBuddy.

Understand Accounting Equation and Rules of Debit and Credit

The equation. Assets (A) = Liabilities (L) + Capital (C). The double effect of every transaction (dual aspect) keeps this true. Expanded form: A = L + Opening capital + Income − Expenses − Drawings.

Four patterns of effect.

Asset up, another asset down (cash paid for furniture): total unchanged.
Asset up, liability up (goods bought on credit): both sides increase.
Asset down, liability down (creditor paid): both sides decrease.
Asset up, capital up (cash brought by owner) or asset down, capital down (drawings, expense paid): both sides change by the same amount.

Rules of debit and credit (modern approach).

Account	Increase	Decrease
Assets	Debit	Credit
Expenses and losses	Debit	Credit
Liabilities	Credit	Debit
Capital	Credit	Debit
Income and gains	Credit	Debit

Traditional golden rules. *Personal*: debit the receiver, credit the giver. *Real*: debit what comes in, credit what goes out. *Nominal*: debit all expenses and losses, credit all incomes and gains.

Method for each transaction. (1) Identify the two accounts. (2) Say the type of each account. (3) Decide increase or decrease. (4) Apply the table. For example, goods bought on credit from Rao for ₹10,000: Purchases (expense/real in traditional view) increases: debit; Rao (liability) increases: credit.

Check. Total debits must equal total credits for each entry.

Accounting Equation and Rules of Debit and Credit: key facts

Accounting equation: Assets = Liabilities + Capital; Always balanced.
Debit: Increase assets
Increase expenses and losses
Decrease liabilities
Decrease capital
Decrease income; Left side of an account.
Credit: Increase liabilities
Increase capital
Increase income and gains
Decrease assets
Decrease expenses; Right side.
Golden rules: Personal debit receiver, credit giver
Real debit what comes in, credit what goes out
Nominal debit expenses and losses, credit incomes and gains; Traditional approach.

Personal	debit receiver, credit giver
Real	debit what comes in, credit what goes out
Nominal	debit expenses and losses, credit incomes and gains

How to answer Accounting Equation and Rules of Debit and Credit questions

Every analysis question is solved by the same four-step routine.

1Find the two accounts affected.
2Write each account's type (asset, liability, capital, expense, income).
3Decide whether each increases or decreases.
4Apply the debit-credit table; confirm debit total equals credit total.
5For equation tables, write the effect on A, L and C and check that A = L + C after each row.

Accounting Equation and Rules of Debit and Credit in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Buying a scooter on credit

Suppose Teja buys a delivery scooter for ₹70,000 on credit from AutoMart.

Analyse the effect on the equation and give the debit and credit.

Try it first, then show the solutionSolution

Asset (scooter) increases by ₹70,000.
Liability (AutoMart as creditor) increases by ₹70,000.
Debit scooter account; credit AutoMart.

Answer: Assets and liabilities both rise by ₹70,000; Dr Scooter, Cr AutoMart.

Memory hook: Asset up, creditor up.

Tricks to remember Accounting Equation and Rules of Debit and Credit

Short memory aids. Say each one aloud once, then use it on a question the same day.

DEAD CLIC
Debit: Expenses, Assets, Drawings; Credit: Capital, Liabilities, Income.
Use it when: Increase side of each account.
Receiver gets the debit
Personal account: debit the receiver.
Use it when: Personal accounts.

Accounting Equation and Rules of Debit and Credit: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Which side? · 1 mark · MCQBoard level

Increase in a liability is recorded on the:
(a) debit side
(b) credit side
(c) either side
(d) neither side

Try it first, then show the solutionSolution

Liabilities and capital increase on the credit side.

Answer: (b) credit side

Example 2: Debit and credit · 4 marks · Short answerBoard level

State the account to be debited and credited: (i) goods purchased for cash; (ii) salary paid; (iii) cash received from debtor Anil; (iv) owner brought additional capital. (4 marks)

Try it first, then show the solutionSolution

(i) Dr Purchases, Cr Cash.
(ii) Dr Salary, Cr Cash.
(iii) Dr Cash, Cr Anil.
(iv) Dr Cash, Cr Capital.

Answer: (i) Purchases/Cash (ii) Salary/Cash (iii) Cash/Anil (iv) Cash/Capital

Example 3: Equation after each transaction · 5 marks · Short answerHarder board level

Show the effect on assets, liabilities and capital: (i) started business with cash ₹1,50,000; (ii) bought furniture for ₹30,000 cash; (iii) bought goods on credit ₹20,000; (iv) paid rent ₹5,000; (v) paid creditor ₹10,000 in cash. State the final A, L and C. (5 marks)

Try it first, then show the solutionSolution

(i) A 1,50,000 = L 0 + C 1,50,000.
(ii) Cash 1,20,000 + Furniture 30,000: A 1,50,000 = C 1,50,000.
(iii) Stock 20,000 added: A 1,70,000 = L 20,000 + C 1,50,000.
(iv) Rent 5,000 reduces cash and capital: A 1,65,000 = L 20,000 + C 1,45,000.
(v) Cash and creditors each fall by 10,000: A 1,55,000 = L 10,000 + C 1,45,000.

Answer: Final: Assets ₹1,55,000; Liabilities ₹10,000; Capital ₹1,45,000.

Example 4: Why some transactions are not entered · 3 marks · Short answerHarder board level

Explain, with the debit-credit rule, why paying a creditor ₹8,000 by cash is Dr Creditor and Cr Cash, and what happens to the total of assets and liabilities. (3 marks)

Try it first, then show the solutionSolution

Creditor is a liability; a decrease in a liability is debited.
Cash is an asset; a decrease in an asset is credited.
Both assets and liabilities fall by ₹8,000; the equation stays balanced.

Answer: Dr Creditor 8,000; Cr Cash 8,000; total assets and liabilities each fall by ₹8,000.

Example 5: Find the missing capital · 4 marks · Short answerHOTS / competency

A firm's assets are ₹6,40,000 and outside liabilities ₹2,10,000 at the end of the year; during the year the owner introduced ₹50,000, withdrew ₹40,000 (drawings) and the firm earned ₹1,00,000 profit. Find opening capital. Then show that the equation balances at the end. (4 marks)

Try it first, then show the solutionSolution

Closing capital = 6,40,000 − 2,10,000 = ₹4,30,000.
Closing = Opening + 50,000 + 1,00,000 − 40,000 = Opening + 1,10,000.
Opening capital = 4,30,000 − 1,10,000 = ₹3,20,000.
Check: A 6,40,000 = L 2,10,000 + C 4,30,000.

Answer: Opening capital = ₹3,20,000; equation balances.

Where students lose marks in Accounting Equation and Rules of Debit and Credit

The slips examiners see most often, and what to write instead.

Mistake: Debiting the giver of a personal account
Reversing the personal rule.
Wrong working
Cash received from Anil: Dr Anil.
Right working
Dr Cash, Cr Anil (Anil gives).
Do this: Debit the receiver, credit the giver.
Usually costs: 1 mark
Mistake: Debiting capital when owner invests
Confusing increase of capital with debit.
Wrong working
Dr Capital.
Right working
Cr Capital; Dr Cash.
Do this: Capital increases on the credit side.
Usually costs: 1 mark
Mistake: Treating rent paid as reducing only cash
Missing the effect on capital.
Wrong working
Cash falls, no other change.
Right working
Cash falls and capital falls by the expense.
Do this: Expenses reduce capital.
Usually costs: 1 mark

Exam tips

Show the equation after each transaction and check A = L + C.
Name the account type next to every debit and credit.
Do not use "Dr/Cr" shorthand without account names.
Total of debits must equal total of credits.

Practice questions on Accounting Equation and Rules of Debit and Credit

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Which of the following is debited when goods are sold for cash?
(a) Sales
(b) Cash
(c) Capital
(d) Purchases
Hint
Asset coming in.
Answer
(b) Cash
Q2 · 3 marks · Short answerHarder board level
Analyse: bought goods ₹40,000, of which ₹25,000 for cash and the rest on credit. Give the effect on the equation and the debit/credit. (3 marks)
Hint
Two accounts credited.
Answer
Stock (asset) up by 40,000; cash down by 25,000; creditors up by 15,000. Dr Purchases 40,000; Cr Cash 25,000; Cr Creditor 15,000. Net assets increase by 15,000, liabilities by 15,000.
Q3 · 4 marks · Short answerHarder board level
An owner starts with cash ₹2,00,000, buys machinery ₹90,000 for cash, goods ₹60,000 on credit, sells goods costing ₹30,000 for ₹45,000 cash. Find the final assets, liabilities and capital (cost of goods sold is the only expense). (4 marks)
Hint
Profit on the sale increases capital.
Answer
Cash: 2,00,000 − 90,000 + 45,000 = 1,55,000. Machinery 90,000. Stock 60,000 − 30,000 = 30,000. Assets = 2,75,000. Liabilities 60,000. Capital = 2,00,000 + 15,000 = 2,15,000. Check: 60,000 + 2,15,000 = 2,75,000.
Q4 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Drawings are debited.
Reason (R): Drawings reduce capital, and a decrease in capital is debited.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Capital decreases on debit.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q5 · 4 marks · Short answerHOTS / competency
A transaction is entered as Dr Cash 5,000 and Cr Capital 5,000 by one student and as Dr Cash 5,000 and Cr Sales 5,000 by another for "received ₹5,000 from the owner as additional investment". Which is correct and what is the effect on the equation of the wrong entry? (4 marks)
Hint
Revenue versus investment.
Answer
Cr Capital is correct: the owner invested. The wrong entry credits Sales (income), which overstates income and profit by ₹5,000 and understates capital introduced; the equation still balances but the profit is wrong.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Accounting equation?Show answer
Assets = Liabilities + Capital.
2.Debit side increases which accounts?Show answer
Assets and expenses.
3.Credit side increases which accounts?Show answer
Liabilities, capital and income.
4.Personal account rule?Show answer
Debit the receiver, credit the giver.
5.Real account rule?Show answer
Debit what comes in, credit what goes out.

Accounting Equation and Rules of Debit and Credit: frequently asked questions

Does every transaction affect the equation?

Yes, but the equation always stays balanced by the dual aspect.

Is debit always an increase?

No; it increases assets and expenses but decreases liabilities, capital and income.

What is the modern approach?

The table of increase and decrease by account type rather than the three golden rules.