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Debit and Credit Rules For Accounting - Debit Vs Credit With Example

In accounting, we add and subtract transactions of the same nature by writing in one place. Such a place is called an account. Before understanding the Meaning of Debit and Credit in the Accounting Books, Debit and Credit Rules, we have to understand the meaning of the account and the format of the account. "To understand the debit & credit rules, we have to understand the basic accounting terms."

Debit Vs Credit Rules In Accounting
Debit Vs Credit Rules In Accounting

Debit and Credit

Account - An account is an account of all transactions related to a particular person or a particular item. In accounting, each person maintains separate accounts of property, liabilities, expenses or income. The place where such an account is written is called an account such as Ghanshyam account, Ram account, machine account, salary account, rent account etc. All transactions with Ghanshyam will be written to Ghanshyam's account and all transactions made with Ram will be written to Ram account.

"An Account is a ledger record in a summarised form, of all the transactions that have taken place with the particular person or things specified.- Carter"

All accounts have two parts. The left side is called the Debit Side and the right side is called the Credit Side. Debit abbreviated to Dr. And Credit to Cr. It is written. For example, if you want to write transactions related to Cash, then Cash Account will be created in the books for which the figure will be as follows:-

CASH ACCOUNT 

Debit (Dr.)

Credit (Cr.)

The above format of the account is like the capital letters of English, so the accounts are also called "T Account". The word Account is abbreviated as A / c.

Debit and Credit Rules

  • American System or Modern Approach
  • English System or Traditional Approach

(English system is also called double accounting system)

American System - The rules of debit and credit depend on the nature of each account. For this purpose, in the American system, all accounts are divided into five parts.

I. Assets Accounts

II. Liabilities Accounts

III. Capital Account or Owner's Equity Account

IV. Revenue or Income Accounts

V. Losses or Expenses Accounts

In the accounting equation, we have seen that the amount in any one account decreases or increases. The same amount also leads to a decrease or increase in another account. Accordingly, the following rules for debiting and crediting accounts come out.

DEBIT AND CREDIT - BASIC ACCOUNTING RULES
DEBIT AND CREDIT RULES

1) Assets Accounts

When there is an increase in the amount of a property, then write the increase in the debit side of the asset account and in case of decrease in the amount of the asset, write it in the credit side of the asset account. For example, if a firm buys furniture of $ 10,000, then it will be written in the debit of the furniture account because the furniture has increased by this amount and if that firm sells furniture of $ 5000, then it will be written to the credit of the furniture account.

Debit Vs Credit

Increase In Assets  - Debit

Decrease In Assets - Credit

(2) Liabilities Accounts

When the amount of an liabilities (obligation) increases. So such an increase is written in the credit side of the liability account and in the debit side of the liability account if there is a decrease in the amount of the liability. For example, if a firm owes $ 10,000 to Govind, Govinda's account will be credited because Govinda owes $ 10,000. When this debt is refunded, Govind's account will be debited as the obligation has now ended.

Debit Vs Credit

Increase In Liabilities - Credit

Decrease In Liabilities - Debit

(3) Capital Account

When the capital of the business owner increases, it is written to the credit of the capital account and if the business owner withdraws some amount from the business for his personal expenses (Drawings), So it reduces the capital and will write it in debit.

Debit Vs Credit

Increase In Capital - Credit

Decrease In Capital - Debit

(4) Revenue or Income Accounts

Write the increase in all the profits or income in the credit to the income account because of this there is an increase in the capital of the owner. Conversely, the reduction in income is written in debit because it reduces the capital.

Debit Vs Credit

Increase In Revenue,Income - Credit

Decrease In Revenue,Income - Debit

(5) Losses or Expenses Accounts

Write all the losses or increase in expenditure in debit to the expense account, because of this there is a decrease in the owner's capital. The credit for the reduction in expenses is written off.

Debit Vs Credit

Increase In Losses,Expenses - Debit

Decrease In Losses,Expense - Credit

Debit and Credit Examples

Briefly based on the above description:- 

1. Increase in value of assets written in debit and decrease in credit.

(Debit the increase in assets and Credit the decrease in assets)

2. Write the increase in liabilities in credit and decrease in debit.

(Credit the increase in liabilities and Debit the decrease in liabilities)

3. Write the increase in capital in credit and decrease in debit.

(Credit the increase in Capital and Debit the decrease in Capital)

4. Write an increase in income in credit and decrease in income in debit.

(Credit the increase in Incomes and Debit the decrease in Incomes)

5. Write the increase in expenditure in debit and decrease in expenditure in credit.

On the basis of the above we can say that the word debit does not indicate any favorable condition. Depending on the nature of the account, it may reveal favorable or unfavorable growth or decrease. Similarly, according to the nature of the account, the word credit can show favorable or unfavorable, increase or decrease. In the case of assets and expenses, the word debit means increase and the word credit means decrease in assets and expenses.

Similarly, the term debit for liability, capital and income is used for reduction and the word credit is used for increase in them.

Example:- On which side will the Increase in the following accounts be recorded?Also mention the nature of account:-

  • Cash
  • Machinery
  • Debtor
  • Creditor
  • Proprietor Account
  • Rent Received
  • Salery Paid
  • Interest Received

Ans:- Nature Of Account

Cash - Cash is an Asset and when it Increases, we Debit it.

Machinery - Machine is also one of our Assets and when it is brought into business, it Increases many of our assets. So we also debit it. This is called fixed assets.

Debtor - Debors are those to whom we sell borrowed goods and then we have to take money from them, then it also becomes our assets.

Creditor - Creditors are those from whom we buy borrowed goods and then have to pay them. It becomes our Liabilities and when it Increase, we credit it.

Proprietor Account - When the capital rises, we credit it because it is the liability of the business.

Rent Received - If the income increases ( rent received) then we also credit it as told to you as per the above rules.

Salery Paid - Salary is our expense because we have to pay $ Dollers to the employees who work in the office, then it is cost for the business. And we debit it under the expense account because it incurs office expenses.

Interest Received - Interest is our kind of income and when income comes in business, we credit it. 

Thank you for your Valuable Time

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