ACCOUNTING

PROCEDURES – RULES OF
DEBIT AND CREDIT
LEARNING OBJECTIVES
Analyse and interpret the
meaning of an account.
Explain the meaning of
debit and credit
Identify the rules of
accounting
State the classification of
accounts
Meaning of an Account
• It is a record of all business transactions related to a particular
person or item.
• It records the amount of transactions along with their effect and
direction.
• It is divided into two parts and presented in a T format, where the
left-hand side is known as debit and the right-hand side is known as
credit.
• T account represents debit and credit sides as (Dr.) and (Cr.)
respectively.
• It is debited by entering the amount on the left side of an account
and is credited by entering the amount on the right side of an
account.
Format and layout of an Account
Meaning of Debit and Credit
• They are referred in the account in abbreviated form as Dr. for debit
and Cr. for credit.
• Left-hand side of an account is termed as the debit side and right-
hand of an account is termed as credit.
• These terms represent either increase or decrease in a particular
account based on the nature of an account.
• If an item is recorded on the debit side of an account, it is said to be
debited to the account and if an item is recorded on the credit side of
an account, it is said to be credited to the account.
 Rules of Debit and Credit
• As per Double Entry System of accounting, every business
transaction has two aspects. One of them is the receiving or
incoming aspect known as the debit aspect and the other is the
giving or outgoing aspect known as the credit aspect.
• Based on these two aspects under Double Entry System of
Accounting, necessary Rules of Debit and Credit are framed based
on the nature of various accounts in order to correctly decide when
to debit the account and when to credit the account to ensure
correct effect and treatment for a particular transaction.
 Classification of Accounts
• Approaches for classification of Accounts:
i. Traditional Approach: According to this approach, all the accounts are
classified into 2 groups for the purpose of recording transactions as
follows:
 Personal Accounts:
• Natural Personal Accounts: These are the accounts of those persons who come
into existence naturally i.e., persons who are creation of God. Therefore, it
includes only accounts in the names of individuals like Maya’s Account,
Rahul’s Account, Om’s Account, etc.
• Artificial Personal Accounts: These are the accounts of those institutions or
corporate bodies which are recognised as persons in business dealings which
includes Company’s Account, Society’s Account, etc.
• Representative Personal Accounts: These are the accounts that represent a
certain person or group of persons which includes accounts like Prepaid and
Outstanding Rent which represents the amount paid in advance and payable to
the landlord respectively.
Impersonal Accounts
All the accounts other than the Personal Accounts are termed as
Impersonal Accounts. These are further classified as follows: 1
1. Real Accounts: Accounts that related to tangible or intangible assets
of the firm, such as Land, Building, etc.and intangible assets such as
Patents and Trademarks.
2. Nominal Accounts: Accounts that relate to incomes,
expenses, gains and losses are known as Nominal Accounts. It
includes the accounts opened to record the particulars of
salaries paid, commission received, rent paid, Sales Account,
etc. In case a prefix or suffix is added to a Nominal Account, it
becomes a Personal Account, e.g., Outstanding Salary, Prepaid
Rent, Interest received in Advance, etc.
ii. Modern Approach