Wednesday, September 17, 2014

Debit and Credit Rules : Accounting Basics Day 2

Debit and Credit
In the preceding session we learnt about “Account”. Account is a place to record transactions of similar nature where all debit and credit happen which is an account. All transactions relating to any asset or liability or expense or income are recorded in an account.

An account is a record of all business transactions relating to a particular person or asset or liability or expense or income. The place where such a record is maintained is termed as an ‘Account’.

Visually an account has two sides viz. the left hand side is for Debit and the right hand side for Credit. Debit is abbreviated as Dr. and Credit Cr.

Now let’s see when to fill debit column and when credit column. There are two ways as we have seen in the previous session. 1) Accounting Equation Approach, 2) Traditional Approach.

As per accounting equation approach rules for debit and credit depend on the nature of an account. Account may be classified as follows
1. Assets Accounts
2. Liabilities Accounts
3. Capital Account
4. Incomes (Revenues) Accounts
5. Expenses (Losses)

Accounts Whenever there is increase or decrease in one account, there will be equal decrease or increase in another account.

Rules for Debit and Credit

Nature of AccountIncreaseDecrease
AssetDebitCredit
LiabilityCreditDebit
CapitalCreditDebit
IncomeCreditDebit
ExpensesDebitCredit


According to traditional approach, accounts are classified as
1.Personal
2. Real
3.Nominal.
As per this approach rules for debit and credit are

Nature of AccountDebitCredit
Personal AccountsReceiverGiver
Real AccountsWhat comes inWhat goes out
Nominal AccountsAll expenses and lossesAll incomes and gains

Read More : Illustration of Accounting Equations
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