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Notes - Rules of Debit and Credit

The document discusses the rules of debit and credit in accounting. It explains that under the traditional/English approach, accounts are classified as personal or impersonal, and rules are provided for debiting and crediting different types of personal and impersonal accounts. The modern/accounting equation approach classifies accounts as asset, liability, capital, revenue or expense accounts, and rules are given for debiting and crediting the increases and decreases in each type of account. A table also shows the types of accounts and whether they are debited for increases or decreases and credited for increases or decreases.

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14K views3 pages

Notes - Rules of Debit and Credit

The document discusses the rules of debit and credit in accounting. It explains that under the traditional/English approach, accounts are classified as personal or impersonal, and rules are provided for debiting and crediting different types of personal and impersonal accounts. The modern/accounting equation approach classifies accounts as asset, liability, capital, revenue or expense accounts, and rules are given for debiting and crediting the increases and decreases in each type of account. A table also shows the types of accounts and whether they are debited for increases or decreases and credited for increases or decreases.

Uploaded by

Chaaru Varshini
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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DPS Nacharam

XI Accountancy
Accounting Procedures - Rules of Debit and Credit

● Transactions are recorded in the books of account on the basis of source documents.
● Rules of debit and credit are applied to each transaction and recorded in the books of
original entry, i.e. Journal or Special Purpose Books in a chronological order.
● The transactions recorded in the books of original entry are posted to the specific
account maintained in the Ledger.
● Account is a record of transactions under a particular head. An account is divided into
two parts, i.e., debit and credit. It is usually in “T” form
● Left hand side of an account is called as ‘Debit’ and right hand side is called as ‘Credit’
● According to the Double Entry System, every transaction has two aspects. One is debit
and the other is credit. Rules of Double Entry or Rules of Debit and Credit are formed on
the basis of these two aspects in each of the business transactions.
● Accounts can be classified in two ways:
○ Traditional Approach also known as English Approach
○ Modern Approach also known as Accounting Equation Approach or American
Approach
● Traditional Approach / English Approach
Under this approach, accounts are classified into two groups
● Personal Accounts
● Impersonal Accounts
➔ Personal Accounts: The accounts which relate to persons. The Personal
Accounts are further classified three categories:
◆ Natural Personal Accounts: Naturally born persons, for example Vishal
Accounts, Nisha Accounts, etc.
◆ Artificial Personal Accounts: Which come into existence because of some
agreement or statute, for example Bank Account, Secunderabad Club
Account, Cooperative Society Account, any company account such as
Wipro Ltd. etc.
◆ Representative Personal Accounts: These accounts represent a certain
person or group of persons. For example, Outstanding Rent Account,
Prepaid Insurance Account, Accrued Commission Account, Interest
Received in Advance Account
Rule of Debit and Credit
Debit the Receiver
Credit the Giver
➔ Impersonal Accounts: The accounts other than personal are further classified
into two categories
◆ Real Accounts
◆ Nominal Accounts
➔ Real Accounts: The Accounts which relate to tangible or intangible assets of the
business other than Debtors are called Real Accounts, for example, Land and
Building Account, Cash Account, Goodwill Account, etc.
Rule of Debit and Credit
Debit What comes in
Credit What goes out
➔ Nominal Accounts: Accounts which relate to expenses, losses and gains,
revenues, etc. are termed as Nominal Accounts. For example, Salary Account,
Purchases, Account, Interest Paid Account, Sales Account etc.
Rule of Debit and Credit
Debit all expenses and losses
Credit all incomes and gains
● Modern Approach / Accounting Equation Approach
Under this approach, accounts are classified into two groups
● Asset Accounts
● Liability Accounts
● Capital Account
● Revenue Accounts
● Expense Accounts
➔ Asset Accounts: Rule
◆ Debit the Increase
◆ Credit the Decrease
➔ Liability Accounts: Rule
◆ Debit the Decrease
◆ Credit the Increase
➔ Capital Account: Rule
◆ Debit the Decrease
◆ Credit the Increase
➔ Revenue Accounts: Rule
◆ Debit the Decrease
◆ Credit the Increase
➔ Expense Accounts: Rule
◆ Debit the Increase
◆ Credit the Decrease

Type of Account Debited Credited

Asset Increase Decrease

Liability Decrease Increase

Capital Decrease Increase


Revenue Decrease Increase

Expense Increase Decrease

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