Last year I wrote a post that included a video that offered a fun way to remember how debits and credits work. I’ll do my good deed for the day by not including the video on this post, but if you want to see it, here is the link to that old post.
After I showed the video to my class last year, a student wrote to me to share a mnemonic she had learned from her high school accounting teacher that she thought also made remembering debits and credits a bit easier.
I’m a big fan of mnemonics, but somehow, despite having taught accounting for just about 40 years at this point, I had never heard of this one.
The mnemonic is DEALER, and here is how it works.
The image below represents what is known as T-account, a way to visualize any account that a company keeps track of, such as Cash, Inventory, Equipment, Accounts Payable, Revenues, and Expenses. There would be separate T-accounts for each account a company uses. The line down the middle is designed to separate the left side (the debit side of the account) from the right side (the credit side of the account).
For any given transaction, at least one account will be debited and one account will be credited, and total debits must equal total credits for each transaction.
What the mnemonic refers to is how to increase the various types of accounts. To record an increase in a Dividend, Expense, or Asset account, you would debit the account. To record an increase in a Liability, Equity, or Revenue account, you would credit the account. When you need to decrease an account, you would do the opposite, e.g., to record a decrease in an Asset account, you would credit the account.
Here is an example of what it would look like to record a transaction using T-accounts. Let’s assume the transaction is for recording the payment of $500 in Salaries Expense.
As noted above every transaction affects at least two accounts; in this case, the two accounts are Cash and Salaries Expense. Cash is an Asset while Salaries Expense is an Expense. Using the guidelines above, since Cash is an Asset, and it is decreasing, we would credit the Cash account. Since Salaries Expense is an Expense, and it is increasing, we would debit the Salaries Expense account.
Here is what it would look like:
So there you have it, a handy mnemonic to remember how to record transactions using the Debit/Credit framework of Accounting.
Once the student shared it with me, I have used it every time I have taught the material since then. In fact, tomorrow is the big day for me to reveal the DEALER mnemonic in my Intro to Accounting class.
I just hope the students are as enamored of it as I am…