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Rules of Debit and Credit

The accounts are divided into five categories for the purposes of recording the transactions: (a) Asset (b) Liability (c) Capital (d) Expenses/Losses, and (e) Revenues/Gains.
 

 

 
Two fundamental rules are followed to record the changes in the accounts:
 
  1. For recording changes in Assets/Expenses (Losses):
    1. “Increase in asset is debited, and decrease in asset is credited.”
    2. “Increase in expenses/losses is debited, and decrease in expenses/ losses is credited.”
  2. For recording changes in Liabilities and Capital/Revenues (Gains):
    1. Increase in liabilities is credited and decrease in liabilities is debited.”
    2. Increase in capital is credited and decrease in capital is debited.”
    3. Increase in revenue/gain is credited and decrease in revenue/gain is debited.”
 

The rules applicable to the different kinds of accounts:

 

 

                  Rules of Debit and Credit
 

Asset

(Increase)

+

Debit

 

(Decrease)

-

Credit

 

Liabilities

(Decrease)

-

Debit

(Increase)

+

Credit

 

Capital

(Decrease)

-

Debit

(Increase)

+

Credit

Expenses/Losses

(Increase)

+

Debit

(Decrease)

-

Credit

Revenues/Gains

(Decrease)

-

Debit

(Increase)

+

Credit

The following transactions have been added to show different kinds of events
 
  1. Rohit started business with cash Rs. 5,00,000
 

Cash Account

Capital Account

 

(1) 5,00,000

   

 

(1)5,00,000

(6) 10,000

 

 
Analysis of Transaction: The transaction increases cash on one hand and increases capital on the other hand. Increases in assets are debited and increases in capital are credited. Therefore record the transaction with debit to Cash and credit to Rohit's

Capital.
  1. Opened a bank account with an amount of Rs. 4, 80,000
 

Cash Account

Bank Account

 

(1) 5,00,000

 

(2) 4,80,000

 

(2) 4,80,000

 

 

 
Analysis of Transaction: The transaction increases the cash at bank on one hand and decreases cash in hand on the other hand. Increases in assets are debited and decreases in assets are credited. Therefore, record the transactions with debit to

Bank account and credit to Cash account.
  1. Bought furniture for Rs. 60,000 and issued cheque for the same
 

Furniture Account

Bank Account

(1) 60,000

 

(2) 4,80,000

(3) 60,000

 

 
Analysis of Transaction: This transaction increases furniture (assets) on one hand and decreases bank (assets) on the other hand by Rs. 60,000. Increases in assets are debited and decreases are credited. Therefore record the transactions with debit to Furniture account and credit to Bank account.
  1. Bought Plant and Machinery from Ramjee lal for the business for Rs. 1, 25,000 and an advance of Rs. 10,000 in cash is given.
 

Cash Account

Plant and machinery Account

 

(1) 5,00,000

(2)4,80,000

(4)10,000

 

(4) 1,25,000

 

 

Ramjee Lal's Account

 

 

(4)1,15,000

 
Analysis of Transaction: This transaction increases plant and machinery (assets) by
 

Rs. 1, 25,000, decreases cash by Rs. 10,000 and increases liabilities (M/s Ramjee Lal as creditor) by Rs. 1, 15,000. Increases in assets are debited whereas decreases in assets are credited. On the other hand increases in liabilities are credited. Therefore, record the transaction with debit to furniture account and with credit to Cash and

Ramjee Lal's account.
 
  1. Goods purchased from Sumit Traders for Rs. 55,000
 

Purchases Account

Sumit Traders Account

(5) 55,000

 

 

 

 

 

 

(5) 55,000

 

 
Analysis of transaction: This transaction increases purchases (expenses) and increases liabilities (M/s Sumit Traders as creditors) by Rs. 55,000. Increases in expenses are debited and increases in liabilities are credited. Therefore record the transaction with debit to Purchases account and credit to Sumit Traders account.
  1. Goods costing Rs. 25,000 sold to Rajani Enterprises for Rs. 35,000
 

Sales Account

Ranjani Enterprises Account

 

 

 

(6) 35,000

 

 

 

(6) 35,000

 

 
Analysis of transaction: This transaction increases sales (Revenue) and increases assets (Rajani Enterprises as debtors). Increases in assets are debited and increases in revenue are credited. Therefore record the entry with credit to Sales account and debit to Ranjani Enterprises account.
  1. Paid the monthly store rent Rs. 2,500 in cash
 

Rent Account

Cash Account

(7)2,500

 

 

 

 

(7)5,00,000

 

(2) 4,80,000

(4) 10,000

(7) 2,500

 

 
Analysis of transaction: The payment of rent is an expense which decreases capital thus, are recorded as debits. Credit cash to record decrease in assets.
  1. Paid Rs. 5,000 as salary to the office employees
 

Salary Account

Cash Account

(8)2,500

 

 

 

 

(1)5,00,000

(2) 4,80,000

(4) 10,000

(7) 2,500

(8) 5,000

 

 
Analysis of transaction: The payment of salary is an expense which decreases capital thus, are recorded as debits. Credit Cash to record decrease in assets.
  1. Received cheque as full payment from Rajani Enterprises and deposited same day into bank

Rajan Enterprises Account

Cash Account

(6)35,000

(9)35,000

(2)4,80,000

(9)35,000

(3)60,000

 

Analysis of transaction: This transaction increase assets (Bank) on the one hand and decreases assets (Rajani Enterprises as debtors) on the other hand. Increase in assets is debited whereas decrease in assets is credited. Therefore record the entry with debit to Bank account and credit to Rajani Enterprises account.




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