Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction(s) and vice versa.
Debits and credits are a system of notation used in bookkeeping to determine how to record any financial transaction. In financial accounting orbookkeeping, "Dr" (Debit) simply means left side of a ledger account and "Cr" (Credit) is the right side of a ledger account.
To determine whether one must debit or credit a specific account we use the modern accounting equation approach which consists of five accounting elements or rules. An alternative to this approach is to make use of the traditional three rules of accounting for: Real accounts, Personal accounts, and Nominal accounts to determine whether to debit or credit an account.
Aspects of transactions
Debits and credits form two opposite aspects of every financial transaction. For example, when a person deposits cash into his bank checking account, this financial transaction has two aspects: the customer’s cash-in-hand (the customer’s asset) decreases and the customer’s checking account balance (the customer’s asset) with the bank increases. The decrease in the cash-in-hand asset is the customer’s credit while the increase in the asset balance in the bank checking account is the customer’s debit.
The bank views it differently. In this example, the bank’s vault cash (asset) increases which is a debit, and the corresponding increase in the customer’s checking account balance (bank’s liability) is a credit.
In summary: an increase (+) to an asset account is a debit. An increase (+) to a liability account is a credit.
Conversely, a decrease (-) to an asset account is a credit. A decrease (-) to a liability account is a debit.