Rules of accounts

Rules of accounts

Rules of accounts under English system

The procedure of debiting and crediting the different kinds of accounts under English system has been summarised as under

1.Personal accounts

Debit the receiver

Credit the giver

2. Real or property accounts

Debit what comes in

Credit what goes out

3. Nominal or fictitious accounts

Debit expenses or losses

Credit incomes or gains

Applying the rules of debit and credit under English system

1.Understand clearly the meaning of a transaction given in the problem.

For example:

 commenced business with ₹10000

2.Find out which two accounts affected in the above transaction.

Cash a/c

Capital a/c

3.Find out to which class the above two accounts belong

Cash a/c belongs to Real account

Capital a/c belongs to representative personal account

4.Apply the respective rules to the two accounts

Cash comes in to the business ,so,as per real account rule - debit what comes in will apply here.

Owner is the giver and he represents personal account ,hence , giver should be credited as per personal account.

Lastly read the particular account to be debited and the account to be credited.

Cash a/c------------Dr.        10000

           To Capital a/c.              -           10,000

Rules of debit and credit under American system

The following rules of debit and credit are based on the accounting equations

1.In the case of assets

Debit increases in assets and credit decreases in assets.

2.In case of liabilities

Debit decreases in liabilities and credit increases in liabilities

3.In case of capital

Debit decreases in capital and credit increases in capital

4.In the case of expenses or losses

Debt increases in expenses and credit decrease is in expenses

5.In the case of incomes or profits or gains

Debit decreases in incomes and credit increases in incomes.

Example: same example is been shown under American system