Rules For Debiting And Crediting

| September 2, 2014 | 0 Comments

What are the rules for Debiting and Crediting? Explain in detail that when an asset may debiting, crediting in an account with example?

Rules For Debiting And Crediting

Rules For Debiting And Crediting:

  1. Accounts of Assets.
  2. Accounts of Liabilities.
  3. Accounts of Owner or Owner’s Equity.
  4. Accounts of Expenses
  5. Accounts of Revenue

1. Rules For Debiting Or Crediting Accounts Of Assets: An Example:

(1) Increase in an asset is recorded on the left side pr debit side of the account.

(2) Decrease in an asset is recorded on the right side or credit side of the account.

In simple words, when there is increase in an asset, the amount is recorded on the debit side of that particular asset account and when there is decrease in an asset, the amount is recorded on the credit side of that particular asset account.

For example, furniture is purchases for Rs. 10, 000 on cash basis. This is a business transaction and it has brought two changes:

(a) Increase in furniture by Rs. 10, 000 (an asset).

(b) Decrease in cash by Rs. 10, 000 (an asset).

These two changes are recorded in two accounts: Furniture account and cash account in the following way:

Furniture And Asset Account Debit And Credit Rule Picture

 

When an amount of Rs. 10, 000 is recorded on the debit side of Furniture account, it is said that furniture account is debited and when an amount of Rs. 10, 000 is recorded on the credit side of cash account, it is said that cash account is credited.

The rules may be illustrated in the following way;Assets Account Example PictureLiability Account And Expense Account Example PictureCapital Account And Revenue Account Example PictureExplanation Of The Rules:

  1. Rule regarding the debiting and crediting the accounts of assets has been explained earlier.
  2. When a liability is created or increase by an amount, that amount is recorded on the credit side of the concerned liability account and when a liability is reduced or decreased, the amount is recorded on the debit side of that particular liability account. For example, if furniture is purchased for Rs. 5000 from Mr. Faisal Gondal on Credit basis, two changes will take place;

(a) Furniture is increased by Rs. 5000 (an asset).

(b) A liability (creditor Mr. Faisal Gondal) in increased by Rs. 5000.

Faisal Gondal Asset Account Picture

 

Suppose, after sometimes cash is paid to Mr. Faisal Gondal (a liability) amounting to Rs. 3000. Again, there are two changes;

(a) Cash is decreased by Rs. 3000 (an asset).

(b) Liability (Creditor Mr. Faisal Godnal) is decreased by Rs. 3000.

The two changes are recorded in two accounts; on the debit side if Mr. Faisal Gondal account (for decrease in liability Mr. Faisal Gondal account is debited) and on the credit side of cash account (being decrease in asset).

3. When an expenses is incurred (increased) by an amount, that amount is recorded on the debit side of that particular expense account. For example, wages are paid in cash amounting to Rs. 9000. The two changes have taken place;

(a) Wages incurred (Increase in expense) by Rs. 9000.

(b) Cash decreased (an asset) by Rs. 9000.

These two changes are recorded in two accounts:

Wages Account And Expenese Account Example PictureNote:

There are very rare examples of decrease in expenses. So, all expenses accounts are generally debited.

4. When Capital or Owner’s Equity is increased (amount invested  by the owner is increased) by an amount, that amount is recorded on the capital amount.

5. When there is increase in the revenue (increase in Sales, Discount received, Commission received, Interest received) of the business by an amount, that is recorded on the credit side of that particular revenue account.

Steps To Remember For Application OF Rules:

  1. See the number of changes which have taken place in a business transaction.
  2. In which accounts those changes should be recorded?
  3. Apply the rule for debiting and crediting according to the classifications of those accounts.

 

 

 

 

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