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I wish there was a simple answer to this question ... but there isn't. The rules of debit & credit in accounting are simple enough to learn and apply, but understanding the 'why' is far more complex, particularly when you are trying to understand the 'first principles' of a system that was created over 500 years ago.Others may answer this question quite differently to me but here is the 'first principles' thinking that I use to understand the concept of 'debits and credits' in accounting and to explain the reason why expenses are debited and revenues are credited in the double-entry bookkeeping system. But to get to the answer, we must first understand some basic principles and concepts regarding business, finance and accounting. These are:The relationship between the business and the owners of the businessSee at its inception, a business is a new entity that is created by owners for the purpose of making them money (profits). So a business begins with nothing and only gets its assets when owners, who are desirous of profits, transfer (invest) economic value (funds) to the business . Any profit subsequently made by the business is then owed to the owners. In this state, regardless of how the business came to have assets under its control, the owners still have a claim over all of them. So the items of economic value controlled by the business would be equal to the owners investment plus the profit that are owed to the owners. This relationship can be represented by the formula:Assets of the business (items of economic value) = Owners Equity (Owners investment + business profits)The relationship between the business and external fundersEver since the rise of the banking system in Venice in the 1400s, businesses have been able to leverage their assets to secure borrowed funds from financial institutions. These funds, that are transferred into the business, are different to the owner's investments because the financial institutions were not chasing the profits of the business and only wanted to get their funds repaid + an extra charge for the use of these funds (interest). These types of funds are called Liabilities. Now while these liabilities increase the assets of the business, in this case, it is the external funders that have a claim over them rather than the owners. Businesses that accept external funding in the form of liabilities create an adjusted formula to the one previous stated. The new formula is:Assets of the business (items of economic value) - Liabilities (money owed to external funders) = Owners Equity (Owners investment + business profits)The assets of the business minus the value of the liabilities is often referred to in finance and accounting as Net Assets. So the formula above can be simplified down to:Net assets of the business = Owners equityThe formation of the debit and credit conceptIn this simplified form we can begin to see what the mathematician and Father of Accounting (Luca Pacioli) saw in 1494 when he codified the double-entry bookkeeping system. It is his codified system that outlined the rules for applying debits and credits when recording the financial transactions of a business in the double-entry bookkeeping system.Now remember that Luca's book in 1494 was written and published in Latin and at a time when the concept of negative numbers was not yet accepted in Europe. So he spoke of the terms 'Debere' and 'Credere' which means in Latin 'to owe' and 'to entrust' respectively because to him they reflected the interlocking relationship created by a business and its owners and represented in the above formula:To maintain this fundamental truth that the value of the net assets of the business must be equal to the value of the owners equity, Luca introduced the concept that the net assets side of the equation would be represented as Debere (Debits = funds owed to the owners) and the owners equity side would be represented as Credere (Credits = funds entrusted).Consequently, he could also see that financial activities that caused net assets to increase should be debited (more funds owed to the owners) and credited if decreased (less funds owed to the owners). The same principle applies to the owners equity side. An increase in owners equity would be credited (more funds entrusted in the business) and a decrease debited (less funds entrusted in the business).Treatment of expenses and revenuesFinally, the treatment of expenses and revenues in the double-entry bookkeeping system.As mentioned earlier, the profits of the business are claimed by the owners. Now profits are the net result of the revenue earned less the expenses incurred in earning that revenue. This means that revenue has the potential to increase profits and thereby increases the owners equity side of the equation. This in turn will lead to more money entrusted in the business, so revenue is credited. Conversely expenses, by being offset against the revenue will reduce the profits and so reduce the available funds to be entrust in the business, so expenses are debited.ConclusionI fully understand that the explanations about 'why' we do certain things can be long-winded. But if the 'why' is as important to you as it has been to me, then I hope this explanation has added to your understanding or has at least prompted you to ask more questions and research answers as it did for me. Here is a 3 minute Youtube on the debits and credits topic.

We will never know …. because double-entry bookkeeping could be said to have been ‘invented’ in much the same way that gravity was invented.See neither concept was ‘invented’ as such, but each was rather discovered as an underlying operating principle, codified in a form that could be communicated to others and then published.Now while Issac Newton was the first to codify and publish his finding on gravity in the publication "Principia" in 1687, Luca Pacioli in 1494, was previously the first to codify and publish his finding on the concept of double-entry bookkeeping in a 27 page section of the publication “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” (Everything about Arithmetic, Geometry, Proportion, and Proportionality).In his publication, Luca Pacioli explicitly states that he did not ‘invent’ double-entry bookkeeping[1], an accounting system (called the Venetian Method) that was already widely used by the merchants of Venice, Genoa and Florence at least a century prior to Luca’s publication.Besides Luca would have known that the concepts of duality in finance relating to the supply (credit) and use of funds (debit) of an entity and the concept of economic value flowing from a source (credit) to a destination (debit) in any financial transaction (a founding principle of double-entry bookkeeping), were as old as human existence and reflected a fundamental law of value exchange that had previously prompted other forms of double-entry accounting to develop over time to record these events. What was accounting like before double-entry bookkeeping?Luca Pacioli’s work has certainly been the most influential for the past 500+ years in the development and acceptance of the double-entry bookkeeping globally, but by his own words, he didn’t invent it because he knew that his codified double-entry booking system simply reflected a fundamental truth about value exchanges between entities … a truth that has always existed.Footnotes[1] http://www.iicpa.com/aboutus/Venetian%20Bookeeping.html

Balaji Viswanathan (பாலாஜி விஸ்வநாதன்) has provided an excellent summary of the components of the accounting system, so I just want to add some more of accounting's less known but still important facts.The current system of accounting we practice today is over 500 years old. Today's accounting system was first codified by a Franciscan friar and mathematician Luca Pacioli in 1494 in a book titled , "The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality" . Luca codified what was then known as the Venetian accounting system and his book was one of the earliest books ever published on the Gutenberg press and was the only accounting textbook for over 100 years. Luca Pacioli was also a colleague of Leonardo da Vinci who helped Luca illustrate his second most important manuscript De Divina Proportione ("Of Divine Proportions"). Leonardo Da Vinci mentions Pacioli many times in his notes. For Luca's great contribution, most accountants today regard Luca Pacioli as the "Father of Accounting".Double-entry bookkeeping was instrumental in the success of the industrial revolution which led to our current global shareholder based corporations and stock exchanges. Without double-entry bookkeeping, managers would not be informed about the financial status of their ventures and investors would not have confidence to invest in a venture that could not accurately and transparently report on the financial performance and position of the venture. The double-entry bookkeeping system allows all stakeholders in a venture to get an accurate picture of the financial performance (Profit & loss report) and financial position (Balance sheet report) of the venture at any time. This knowledge of the venture's financial sustainability and strength allows stakeholders to make informed decisions about the efficient and effective allocation of scarce resources which is the foundation of sound business practice that ensures businesses remain viable and that the most successful ventures attract the appropriate amount and quality of resources. See Why is double-entry bookkeeping such a big deal?Accounting, with its double-entry bookkeeping system, reflects the reality of a closed financial system where economic value is not created or destroyed but is simply transferred from one form (account) to another. Luca Pacioli originally tagged this duality of financial transactions in a closed system by the Latin terms “Credre” “to entrust” and “Debere” “to owe”. These terms were later translated into English as "Credit" and "Debit" and represent the flow of economic value from "Credit" (the source) to "Debit" (the destination). All financial transactions adhere to this flow of economic resources. Interestingly the Latin word for "Debit" (i.e. Debere) explains how we get the today's abbreviation of "Dr" for "Debit".The "Balance Sheet" does not represent the market value of a business. For reasons of convention and conservatism, accountants value assets in the financial reports at the asset's purchase price (historical cost) and not at its current market price. While a Balance sheet proclaims to be the statement of financial position, it should be remembered that the assets stated in the report could be either under or over stated relative to current market valuations. Furthermore, accounting has no interest in valuing and including items of intangible value unless they have been actually paid for with 'cold hard cash'. Maybe your website gets 1 million hits per month, maybe you have a brand reputation with global recognition, maybe you have the top people in your industry working for you, maybe you have a trademark that is the envy of the world ... accounting will only value these assets at what it cost you to create them, not at what they are currently worth."Creative accounting" that saw the profit reporting of Enron evaporate into a massive loss making venture within months, is alive and well. Accounting is not an exact science. A subjective view of revenue and expenditure is often required when preparing financial statements. By simply changing expenses to assets overvaluing inventory using a different formula, optimistically valuing outstanding debtors, bringing forward earnings or postponing expenses one can create an overly unrealistic profit result. The best way by far to identify 'creative accounting' is to ask for a month by month analysis of the accounts and look for the monthly variances and anomalies. "creative accounting" generally happens in the closing month of the reporting period with unusual 're-classifications'.There is no global accounting standard. You would think that in an era of globalisation, there would be a global accounting and financial reporting standard. Not so. While there are moves towards the international standard IFRS by over 100 countries, the biggest economy in the world (USA) looks like continuing with its own GAAP standard. Closing the GAAPYour accountant is one of the few professional business advisers that actually makes you money. I apologize now to all those other worthwhile and worthy business professions, but I have found that only my accountant made me money when comparing the cost of the consultation with the cashflow returns I received from their advice. You spend most of your money with other professions in alleviating fears or meeting compliance obligations rather than making or saving the money that accountants do so well.Understanding accounting and the financial reports that it produces is a critical competency of every business owner or CEO. Maybe you are a marketing/Buz Dev genius or an operations wizard or a HR expert ... if you don't know how to read, analyse or interpret a Profit and Loss Statement, Balance Sheet, a Cashflow Statement or variance report then you are doomed. Areas like sustainable pricing, shareholder deal negotiations, breakeven analysis, enterprise valuation, expense variation/control, liquidity, profitability and efficient asset management will all be beyond you.