Debits, Credits, and the Chart of Accounts

Welcome to your third lesson in Accounting Foundations.

In our previous session, you learned to classify all business activities into the five fundamental account types: Assets, Liabilities, Equity, Revenues, and Expenses. You also saw how these are organized within the Moroccan Chart of Accounts (Plan Comptable Général Marocain - PCGM).

Today, we will learn the language used to record changes in these accounts. The objective of this lesson is to distinguish between debits and credits and apply their rules to the five account types. Mastering this is the key to unlocking double-entry accounting. Think of our last lesson as identifying the actors on a stage (the accounts); this lesson teaches you their possible movements (debit and credit).

1. Debits and Credits: The Duality of Accounting

At its core, the double-entry system recognizes that every business transaction has two equal and opposite effects. For something to be gained, something else must be given up. Debits and credits are simply the words accountants use to label these two sides of a transaction.

It is crucial to shed some common misconceptions:

• Debit and Credit do not mean "good" or "bad."
• They do not simply mean "add" or "subtract."

Instead, think of them as the two sides of a coin, or as the "source" and "destination" of economic value.

To introduce this core concept, let's watch a short segment from a video by Accounting Stuff.

As the video explains, every transaction involves a flow of "economic benefit."

• A Debit (abbreviated Dr.) records where the economic benefit goes—its destination.
• A Credit (abbreviated Cr.) records where the economic benefit comes from—its source.

For example, when a company buys a computer (Actif) with cash (Actif), the economic benefit flows from the bank account (the source, so it's a credit) to the computer (the destination, so it's a debit).

2. The Rules of Application

Now for the critical question: How do we apply these labels to our five account types? The rules are directly derived from the expanded accounting equation we discussed in the previous lessons.

Let's rearrange the expanded equation slightly. Remember that equity is decreased by expenses and owner drawings, and increased by revenues.

Assets = Liabilities + Equity + (Revenues - Expenses)

If we move the items that decrease equity to the left side of the equation to make them positive, we get:

Assets + Expenses = Liabilities + Equity + Revenues

This rearranged equation is the secret to understanding debits and credits!

• Accounts on the left side (Assets, Expenses) are increased with a Debit.
• Accounts on the right side (Liabilities, Equity, Revenues) are increased with a Credit.

The following video segment walks through this derivation and introduces a helpful mnemonic.

This gives us our fundamental rules:

Account Type	To Increase Balance	To Decrease Balance	Normal Balance
Assets (Actif)	Debit	Credit	Debit
Expenses (Charges)	Debit	Credit	Debit
Liabilities (Passif)	Credit	Debit	Credit
Equity (Capitaux Propres)	Credit	Debit	Credit
Revenues (Produits)	Credit	Debit	Credit

The "Normal Balance" is the side (debit or credit) that causes the account to increase. For example, an asset account like Banque will normally have a debit balance.

Another way to think about this is that each account has a "nature." An increase always follows the account's nature, while a decrease goes against it.

This table summarizes this "nature-based" view:

Account Type	Nature	To Increase (Follows Nature)	To Decrease (Goes Against Nature)
Assets (Actif)	Debit	Debit	Credit
Expenses (Charges)	Debit	Debit	Credit
Liabilities (Passif)	Credit	Credit	Debit
Equity (Capitaux Propres)	Credit	Credit	Debit
Revenues (Produits)	Credit	Credit	Debit

Both methods—the rearranged equation and the "nature" of accounts—lead to the exact same rules. Use whichever one makes the most sense to you. The following image, common in French accounting education, provides a great visual summary.

3. Applying the Rules: Practical Examples

Let's see these rules in action. The key is to break down every transaction into two parts: what did the business get (destination), and what did it give (source)? Then, apply the rules to the accounts affected.

Let's watch two examples that illustrate these rules perfectly.

Let's recap the logic from the video:

Transaction 1: Received 500 MAD from a client for a service.

1. Analysis: The business's cash increased, and its revenue from sales increased.
2. Accounts: Banque (Asset) and Ventes de services (Revenue).
3. Rules:
   • Banque is an Asset. To increase an Asset, you Debit it.
   • Ventes de services is a Revenue. To increase a Revenue, you Credit it.
4. Result: Debit Banque 500 MAD, Credit Ventes de services 500 MAD.

Transaction 2: Paid 200 MAD for an internet subscription.

1. Analysis: The business incurred an expense, and its cash decreased.
2. Accounts: Services extérieurs (Expense, e.g., for subscriptions) and Banque (Asset).
3. Rules:
   • Services extérieurs is an Expense. To increase an Expense, you Debit it.
   • Banque is an Asset. To decrease an Asset, you Credit it.
4. Result: Debit Services extérieurs 200 MAD, Credit Banque 200 MAD.

This logic connects directly back to the Moroccan Chart of Accounts. The normal balances of the account classes you learned about align with these rules.

Test your understanding!

For each transaction, identify the two accounts affected, their types, and whether they should be debited or credited.

1. The company borrows 50,000 MAD from the bank.
2. The company pays its supplier Fournisseur A 10,000 MAD that it owed.
3. The owner invests an additional 20,000 MAD of their own money into the business.

Show answer

1. Transaction: Borrow 50,000 MAD from the bank.

   • Accounts: Banque (Asset) and Emprunts (Liability).
   • Analysis: The company's cash increases, and its long-term debt increases.
   • Entry:
     • Debit Banque (Asset increases) for 50,000.
     • Credit Emprunts (Liability increases) for 50,000.

2. Transaction: Pay supplier Fournisseur A 10,000 MAD.

   • Accounts: Fournisseurs (Liability) and Banque (Asset).
   • Analysis: The company's debt to its supplier decreases, and its cash decreases.
   • Entry:
     • Debit Fournisseurs (Liability decreases) for 10,000.
     • Credit Banque (Asset decreases) for 10,000.

3. Transaction: Owner invests 20,000 MAD.

   • Accounts: Banque (Asset) and Capital social (Equity).
   • Analysis: The company's cash increases, and the owner's stake in the company increases.
   • Entry:
     • Debit Banque (Asset increases) for 20,000.
     • Credit Capital social (Equity increases) for 20,000.

Conclusion

You have now learned the fundamental mechanism of double-entry accounting. These rules are universal and form the basis for every journal entry you will make.

Key Takeaways:

• Debits (Dr.) and Credits (Cr.) are labels for the two sides of any transaction. A Debit is conventionally on the left, and a Credit is on the right.
• For every transaction, Total Debits must equal Total Credits.
• The rules for applying them derive from the accounting equation:
  • Assets and Expenses are increased with a Debit.
  • Liabilities, Equity, and Revenues are increased with a Credit.
• An account's normal balance is the side (debit or credit) that increases it.

Preview of the Next Lesson

You now understand the "what" (the five account types) and the "how" (the rules of debit and credit). Before we start recording transactions, we need to finalize our understanding of the accountant's primary tool: the chart of accounts. In the next lesson, we will take a deeper look at the Plan Comptable Général Marocain (PCGM), focusing on its purpose and detailed structure. This will ensure you can find the correct account number for any transaction you need to record.