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Debit and Credit and theirs rules

Each transaction must affect two or more accounts with debit equal to credit. It is a concept that states every transactions involves the giving of a benefit and the receiving of a benefit. Each account includes two sides. one side of account is known as debit and another side is known as credit. Simply debit refers the left hand side of an account and credit is the right hand side. Thus, the guidelines for debiting and crediting the account while recording the financial transactions refer the rule of debit and credit.

Under this approach , first of all the accounts involve in the transactions are classified into different types as they belong and rule of debit and credit are applied. the types of accounts and the rule of debit and credit are given below:-

Personal Account:- The account relating to person or individual such as natural person and the artificial person is called personal account. For Examples: Ram account , Sita account , Afroj account , Nepal Bank account etc.

Rule Applied:-

Debit: The receiver

Credit : The giver

Real Account: The account relating to the assets which really exist with the monetary value is called real account. For Examples: land , building, plants, machinery, furniture, equipment, cash, stock of goods , stock of supplies etc.

Rule Applied:

Debit: What comes in

Credit: What goes out

Nominal Account: The account relating to expenses , losses , income , revenue , gain etc. are called nominal account.

Rule Applied:

Debit: All expenses and losses

Credit: All incomes and gains

Some of the examples , which help to understand the rule of debit and credit are given below:-

Transactions Account involveAccount TypeExplanation Rule of Debit and credit
Started business with cash Cash a/c
Capital a/c
Real
Personal
comes in
giver
Debit
credit
Purchase furniture for cash Furniture a/c
Cash a/c
Real
Real
comes in
goes out
Debit
Credit
signed promissory note at bank and received loan Cash a/c
Notes payable a/c
Real
Personal
comes in
giver
Debit
Credit
Purchase office supplies on cashsupplies a/c
Cash a/c
Real
Real
comes in
goes out
Debit
Credit
Advertisement paidAdvertisement expenses a/c
Cash a/c
Nominal
Real
expenses
goes out
Debit
Credit
Provide service on cashcash a/c
Service Revenue a/c
Real
nominal
comes in
income
Debit
Credit
Payment of to accounts payableAccount payable a/c
cash a/c
Personal
Real
receiver
goes out
Debit
Credit
Purchase of merchandise on creditStock of goods
Account Payable a/c
Real
Personal
comes in
giver
Debit
Credit

On the Basis of Account Heads/ Accounting Equations

Overall transactions of an organization creates five categories of accounts heads. They are:- assets related, liabilities related, capital or equity related, expenses and income related accounts. The rules applied for debit and credit under this basis as discussed below:-

Debit: Increase in assets and decrease in liabilities

Credit: Decrease in assets and increase in liabilities

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