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