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CHAPTER Accounting Procedures—
CHAPTER

6 Rules of Debit and Credit

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Account It is a summarised record of transactions at one place relating to a
particular head. It records not only the amount of transactions but
also their effect and direction.

2. Balancing It means totalling the two sides of an account and striking a balance.
(a) Debit Balance It is the difference between total of debit and credit sides of an
account, total of debit side being bigger.
(b) Credit Balance It is the difference between total of debit and credit sides of an
account, total of credit side being bigger.
3. Rules of Debit and
Credit

(A) Traditional Classification
(i) Personal Account Debit the receiver and credit the giver.
(ii) Real Account Debit what comes in and credit what gives out.
(iii) Nominal Account Debit all expenses and losses and credit all incomes and gains.

(B) Modern Classification
(i) Assets Assets are the financial resources of an organisation. Assets have a
debit balance. An increase in assets is debited and decrease credited.
(ii) Liabilities Liabilities are the claim against the financial resources (i.e., assets).
Liabilities have credit balance. An increase in liabilities is credited
and decrease debited.
(iii) Capital An amount or fund introduced in the business by the owner is
known as capital. Capital has a credit balance. An increase in capital
is credited and decrease debited.
(iv) Expenses Expense is a value which has expired during the accounting period.
Expenses have a debit balance. An increase in expenses is debited
and decrease credited.
(v) Revenue Revenue is amount earned on sales of goods, services
rendered or for use by others of enterprise’s resources.
Revenue has a credit balance. An increase in revenue is credited and
decrease debited.