Month: October 2018

In the previous topic, we saw how Double Entry System works but that concept cannot handle the accounting work independently. So some more basic concepts are introduced for channelizing double entry system. As you are aware that Super 20 Training Institute (S20) is recognized as one of best accounting training institute in Ahmedabad and we have various accounting courses, tally courses, taxation courses, GST courses for students of various backgrounds, we will endeavour to explain the concepts of debits and credits in detail.

The two sides of any account are arbitrarily distinguished. The left of an account is called the debit side; the right side is called the credit side. Any entry on the left side of an account is called a debit entry or debit, an entry on the right side is called a credit entry or credit.

Double entry system means the recording of both the aspects i.e., receiving of values and giving of values of each transaction. When an account receives the value or benefits it is debited and when it gives a value or benefit, it is credited. As every transaction affects at least two accounts, one account receives a benefit of the certain value; another account would give the benefit of the same value. So it is simply no need to go to any tally academy or accounting academy for this.

Rules have been framed for the correct debit and credit of following
– Personal account
– Real account
– Nominal account

Personal Account: ‘Debit the receiver and credit the giver’
Debit the account of a person who receives something and credit the account of the person who gives something. For example: if you purchase goods from the Ram, on credit, the two accounts involved are Goods (Purchase) Account and Ram’s Account. Since Ram is a giver in this transaction his account will be credited. Similarly, if cash is paid to Ram, Ram’s Account will be debited since he is the receiver.

Real Account: ‘Debit what comes in, credit what goes out’
Debit the account of the thing which comes in and credit the account of the thing which goes out. For example: when furniture is purchased in cash, furniture account is debited while cash account should be credited.

Nominal Account: ‘Debit all expenses and losses and credit all income and gains’
Debit the accounts of expenses and losses and credit all income and gain. For example: if you pay salary to the clerk, the two accounts involves are salary account and cash account. Salary account is a nominal account. Salary paid is an expense of the business and therefore this account will be debited. Similarly, if the interest is received, interest account will be credited, since interest is an income item.

If the three fundamental rules described above are kept in mind, it would be possible to record all the transactions correctly.

You must have noted that if a transaction involves two accounts of different kinds then relevant positions of relevant rules will be applied. For example payment of salary affects salary account and the cash account – the former is a nominal account whereas the letter is a real account.

Hence, the former part of the third rule and the latter part of the second rule will be applicable, i.e., the rule will be: Debit all expenses and losses and credit what goes out. Salary account will be debited and cash account is credited.

Well, if you want to know debit credit in details, you can surely approach us and join our Executive of Commerce course or visit our website www.s20.in. you can also visit our centre in Ahmedabad.