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The Rules of Debit and Credit

Double entry system means the recording o both the aspects – receiving o values and giving of values – of each transaction. These two aspects are distinguished in terms of Debit and Credit. An Account is capable of receiving and giving of values. When an account receives a value or benefit it is debited and when it gives a value or benefit, it is credit. The Rule is:

Debit: the Account that receive the benefit.
Credit: the Account that gives the benefit.

An Account is debited with any value that comes into that account and an account is credited with any value that goes out of that account. Every transaction affects at least two accounts. If one account receives a benefit of certain value, another account would give the benefit of the same value. Thus the rule:

Every debit must have a corresponding credit.
Every credit must have a corresponding debit.

This the basic rule of double entry book-keeping.

Application of Debit-Credit Rules to Accounts

The rules for debit and credit are applied to various types o accounts in the following manner:

Personal Accounts

Personal Accounts are the accounts of persons – natural and artificial. A person can either receive a benefit or give a benefit. Debit: the account of the person who receives something. Credit: the account of the person who gives some thing.

Thus the Rule – Debit: The Receiver; Credit: The Giver

Real or Property Accounts

Real or property accounts are the account of things which are though real and concrete but lifeless. They can neither receive nor give the benefit. But a thing may come into the business when it is purchased and go out of the business when it is sold. Debit: The account of the thing which comes in. Credit: The account of the thing which goes out.

Thus the Rule – Debit: What comes in; Credit: What goes out

Nominal or Fictitious Account

These are the accounts of expenses, losses, income and gains. Expenses and losses accounts are debit and income and gains accounts are credited. The rule of debiting losses and expenses and crediting income and gains may seem a contradiction of the general procedure but if the matter is carefully considered, it will be seen that this is not the case. It has already been state that each transaction must have a debit and credit.

Thus the Rule – Debit: Expenses and Loses; Credit: Income and Gains.

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