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    Rules of Debit and Credit

    Uploaded by

    Chirag Choudhary

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Rules of Debit and Credit

    Uploaded by

    Chirag Choudhary
    18 views30 pages

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    Download as pptx, pdf, or txt
    18 views30 pages

    Rules of Debit and Credit

    Uploaded by

    Chirag Choudhary

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    RULES OF DEBIT AND CREDIT

    ACCOUNT
    • Account is a summarised record of
    transactions at one place relating to particular
    head.

    • It is T-shaped.
    • The left side is the –DEBIT
    • The right side is the CREDIT
    • An item recorded on the debit side of an
    account is said to be “DEBITED TO THE
    ACCOUNT”

    • An item recorded on the credit side of the


    account is said to be “CREDITTED TO THE
    ACCOUNT
    RULES OF DEBIT AND CREDIT

    MODERN APPROACH TRADATIONAL APPROACH

    ASSETS
    LIABILITIES
    PERSONAL ACCOUNTS
    CAPITAL REAL ACCOUNTS
    REVENUE
    EXPENSES NOMINAL ACCOUNTS
    MODERN APPROACH
    • According to modern approach, the accounts
    are divided into : (CLEAR)
    • ASSETS
    • LIABILITIES Balance sheet accounts
    • CAPITAL
    • REVENUE/INCOME
    • EXPENSES/LOSSES Income statement
    accounts
    ASSETS AND EXPENSES
    • RULE:
    TO INCREASE: DEBIT

    TO DECREASE :CREDIT

    Note : Drawings, Purchases, Sales Return, Losses


    follow the same rule.
    LIABILITY, CAPITAL, REVENUE
    • RULE:
    TO INCREASE: CREDIT

    TO DECREASE :DEBIT

    Note : SALES, PURCHASE RETURN, INCOME


    RECEIVED, GAIN, PROVISIONS follow the same
    rule.
    ANALYSIS OF TRANSACTIONS
    • Dinesh started business with cash ₹ 5,00,000
    • Borrowed money from Naresh ₹ 1,00,000
    • Purchased furniture for cash ₹ 20,000
    • Purchased goods from Mahesh ₹ 30,000
    • Sold goods for Shyam on credit ₹ 25,000
    • Cash received from Shyam ₹ 20,000
    • Paid salary to staff ₹ 15,000
    • Paid rent ₹ 6,000
    TRADITIONAL APPROACH
    PERSONAL ACCOUNTS (these accounts relate to persons)

    REPRESENTATIV
    NATURAL ARTIFICIAL
    E PERSONAL
    PERSONS PERSONS
    ACCOUNTS
    PERSONAL ACCOUNTS
    • Accounts which relate to persons,ie,
    individuals, firms, companies, debtor’s
    creditors, are personal accounts.
    For example :
    • Ram &Co. ,a customer(debtor)
    • Jhaveri &Co., a supplier(creditor)
    • Capital A/c and Drawings A/c of the proprietor
    Natural persons
    • NATURAL PERSONS : These term “Natural
    persons” means who are creations of god.
    Therefore, these will include accounts in
    individual’s name.
    • Ram’s Account, Asha’s Account
    Artificial persons
    • These accounts include accounts of corporate
    bodies or institutions which are recognised as
    persons in business dealings.
    • Eg. Account of a Limited company
    • Bank A/c (State bank of India Ltd.)
    Representative Personal Accounts
    • These are accounts which represent a certain
    person or a group of persons.
    • Eg. If the rent is due to the landlord, an
    Outstanding rent Account will be opened in
    the books. The Outstanding Rent Account
    represents the amount of rent payable to the
    landlord.
    • Other examples: Prepaid Rent, Accrued
    Commission, Unearned income
    (Income/ Expense)+ Prefix or suffix of
    Outstanding
    Prepaid
    Accrued
    Advance
    Due
    Unearned
    PERSONAL ACCOUNT: RULE

    • DEBIT THE RECEIVER,


    • CREDIT THE GIVER
    REAL ACCOUNTS
    These are the accounts which relate to TANGIBLE
    AND INTANGIBLE ASSETS (excluding debtors)

    Eg: Land, Building, Machinery, goodwill,


    Trademarks, Cash , Stock, Investments

    Note: Bank is not a real account, it is a PERSONAL


    ACCOUNT.
    REAL ACCOUNT: RULE

    • DEBIT WHAT COMES IN,


    CREDIT WHAT GOES OUT
    NOMINAL ACCOUNTS
    • Accounts which relate to expenses, losses,
    gains, revenues, income are termed as
    Nominal Accounts.
    • Examples:
    • Purchases A/c
    • Sales A/c
    • Rent A/c
    • Salary A/c
    NOMINAL ACCOUNTS: RULES

    • DEBIT ALL EXPENSES AND


    LOSSES,
    CREDIT ALL INCOMES AND
    GAINS
    NOTE
    • If a prefix or a suffix (outstanding, Prepaid,
    Accrued) is added to a Nominal account, it
    becomes a PERSONAL ACCOUNT
    • Goods Purchased from Ram

    • Cash Sales
    • Purchased Furniture for cash

    • Rent paid

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