Alternative Rules of Debit and Credit:
American accountants have developed alternative rules of debit and credit for recording various transactions. They have classified the accounts into five categories, and laid down five sets of rules of debit and credit for the five categories of accounts.
The five categories of accounts given by the American accountants are:
1. Assets
2. Liabilities
3. Capital
4. Incomes and Gains and
5. Expenses and Losses
The rules of debit and credit formulated by the American accountants for the above five categories of accounts are:
1. In the case of Assets:
The rule of debit and credit in the case of Assets is:
"Debit increase in an asset & Credit decrease in an asset"
The rule for debiting and crediting assets can be explained with the help of the following examples:
1. Paid Bhaskar Rs.500
In this case, the asset account involved is Cash Account. When the business pays cash to Bhaskar, the asset, i.e., cash, of the business decreases. As there is a decrease in the asset, i.e., cash, Cash Account should be credited.
2. Bought furniture for Rs.500 from National Furniture Mart on credit.
In this transaction the asset account involved is Furniture Account. When the business buys furniture, the asset, i.e., furniture of the business increases. As there is an increase in the asset, i.e., furniture, Furniture Account should be debited.
2. In the case of Liabilities:
The rule of debit and credit in the case of liabilities is:
"Debit decrease in a liability, & Credit increase in a liability".
The rule for debiting and crediting liabilities may be explained with the help of the following examples:
1. Purchased goods for Rs.2000 from Murali on Credit.
The liability account in this transaction is Murli's Account. (When goods are purchased from Murli on credit, Murli is the creditor of the business. So, Murli's account constitutes a liability account). When goods are purchased on credit from Murali, the liability of the business, i.e., the amount due to Murli's, increase. As there is an increase in the liability, i.e., in the amount due to Murli's, Murli's Account should be credited.
2. Paid Murli Rs.1,000 on account.
The liability account involved in this case in Murli's account. When the business pays Murli on account, the liability of the business, i.e., the amount due to Murli's, decreases. As there is a decrease in the liability, i.e., in the amount due to Murli's, Murli's Account should be debited.
3. In the case of Capital:
The rule of debit and credit in the case of Capital is:
"Debit decrease in capital & Credit increase in capital"
The rule for debiting and crediting capital may be explained with the help of the following examples:
1. Rao commenced business with Rs.10.000.
In this example, Rao is the proprietor of the business. So, Rao's Personal Account is Capital Account. When the proprietor commenced business with cash (i.e., when the business receives cash from the proprietor), there is an increase in the capital of the proprietor. As there is an increase in the proprietor's capital, his capital account should be credited.
2. Rao withdrew cash of Rs.500 from Business for his personal use.
In this example, as the proprietor withdraws cash from the business, his capital account is involved. When the proprietor withdraws cash from the business (i.e., when the business pays cash to the proprietor), there is a decrease in the proprietor's capital. As there is a decrease in the proprietor's capital, his Capital Account (or his Drawings Account) should be debited.
4. In the case of Incomes and Gains:
The rule of debit and credit in the case of Incomes and Gains is:
"Debit decrease in an income & Credit increase in an income"
The rule for debiting and crediting incomes and gains may be explained with the help of the following examples.
1. Received commission Rs.100.
Commission received by the business is an income. So, Commission account is an income account. When the business receives commission, there is an increase in the income, i.e., commission. As there is an increase in the income, i.e., commission, Commission Account should be credited.
2. Out of commission received, Rs.20 has to be carried forward to next year.
In this case, the income account involved is Commission Account. When a portion of commission received is carried forward to next year, there is a decrease in the income, i.e., commission. As there is a decrease in the income, i.e., commission, Commission Account should be debited.
5. In the case of Expenses and Losses:
The rule of debit and credit in the case of expenses and losses is:
"Debit increase in an expense & Credit decrease in an expense"
The rule for debiting and crediting expenses and losses can be explained with the help of the following examples:
1. Paid rent Rs.200
Rent paid by the business is an expense. So, Rent Account is an expense account. When the business pays rent, there is an increase in the expense, i.e., rent. As there is an increase in the expense, i.e., rent, Rent Account should be debited.
2. Out of rent paid, Rs.50 has to be carried forward to next year.
In this transaction, the expense account involved is Rent Account. When a portion of rent paid is carried forward to next year, there is a decrease in the expense, i.e., rent. As there is a decrease in the expense, i.e., Rent Account should be credited.
The alternative rules for debiting and crediting various accounts may be summarised as follows:
Assets: "Debit increase in an asset & Credit
decrease in an asset"
Liabilities: "Debit decrease in a liability & Credit
increase in a liability"
Capital: "Debit decrease in capital & Credit increase
in capital"
Incomes and Gains: "Debit decrease in an income & Credit increase in an
income"
Expenses and Losses: "Debit increase in an
expense & Credit decrease
in an expense"
American accountants have developed alternative rules of debit and credit for recording various transactions. They have classified the accounts into five categories, and laid down five sets of rules of debit and credit for the five categories of accounts.
The five categories of accounts given by the American accountants are:
1. Assets
2. Liabilities
3. Capital
4. Incomes and Gains and
5. Expenses and Losses
The rules of debit and credit formulated by the American accountants for the above five categories of accounts are:
1. In the case of Assets:
The rule of debit and credit in the case of Assets is:
"Debit increase in an asset & Credit decrease in an asset"
The rule for debiting and crediting assets can be explained with the help of the following examples:
1. Paid Bhaskar Rs.500
In this case, the asset account involved is Cash Account. When the business pays cash to Bhaskar, the asset, i.e., cash, of the business decreases. As there is a decrease in the asset, i.e., cash, Cash Account should be credited.
2. Bought furniture for Rs.500 from National Furniture Mart on credit.
In this transaction the asset account involved is Furniture Account. When the business buys furniture, the asset, i.e., furniture of the business increases. As there is an increase in the asset, i.e., furniture, Furniture Account should be debited.
2. In the case of Liabilities:
The rule of debit and credit in the case of liabilities is:
"Debit decrease in a liability, & Credit increase in a liability".
The rule for debiting and crediting liabilities may be explained with the help of the following examples:
1. Purchased goods for Rs.2000 from Murali on Credit.
The liability account in this transaction is Murli's Account. (When goods are purchased from Murli on credit, Murli is the creditor of the business. So, Murli's account constitutes a liability account). When goods are purchased on credit from Murali, the liability of the business, i.e., the amount due to Murli's, increase. As there is an increase in the liability, i.e., in the amount due to Murli's, Murli's Account should be credited.
2. Paid Murli Rs.1,000 on account.
The liability account involved in this case in Murli's account. When the business pays Murli on account, the liability of the business, i.e., the amount due to Murli's, decreases. As there is a decrease in the liability, i.e., in the amount due to Murli's, Murli's Account should be debited.
3. In the case of Capital:
The rule of debit and credit in the case of Capital is:
"Debit decrease in capital & Credit increase in capital"
The rule for debiting and crediting capital may be explained with the help of the following examples:
1. Rao commenced business with Rs.10.000.
In this example, Rao is the proprietor of the business. So, Rao's Personal Account is Capital Account. When the proprietor commenced business with cash (i.e., when the business receives cash from the proprietor), there is an increase in the capital of the proprietor. As there is an increase in the proprietor's capital, his capital account should be credited.
2. Rao withdrew cash of Rs.500 from Business for his personal use.
In this example, as the proprietor withdraws cash from the business, his capital account is involved. When the proprietor withdraws cash from the business (i.e., when the business pays cash to the proprietor), there is a decrease in the proprietor's capital. As there is a decrease in the proprietor's capital, his Capital Account (or his Drawings Account) should be debited.
4. In the case of Incomes and Gains:
The rule of debit and credit in the case of Incomes and Gains is:
"Debit decrease in an income & Credit increase in an income"
The rule for debiting and crediting incomes and gains may be explained with the help of the following examples.
1. Received commission Rs.100.
Commission received by the business is an income. So, Commission account is an income account. When the business receives commission, there is an increase in the income, i.e., commission. As there is an increase in the income, i.e., commission, Commission Account should be credited.
2. Out of commission received, Rs.20 has to be carried forward to next year.
In this case, the income account involved is Commission Account. When a portion of commission received is carried forward to next year, there is a decrease in the income, i.e., commission. As there is a decrease in the income, i.e., commission, Commission Account should be debited.
5. In the case of Expenses and Losses:
The rule of debit and credit in the case of expenses and losses is:
"Debit increase in an expense & Credit decrease in an expense"
The rule for debiting and crediting expenses and losses can be explained with the help of the following examples:
1. Paid rent Rs.200
Rent paid by the business is an expense. So, Rent Account is an expense account. When the business pays rent, there is an increase in the expense, i.e., rent. As there is an increase in the expense, i.e., rent, Rent Account should be debited.
2. Out of rent paid, Rs.50 has to be carried forward to next year.
In this transaction, the expense account involved is Rent Account. When a portion of rent paid is carried forward to next year, there is a decrease in the expense, i.e., rent. As there is a decrease in the expense, i.e., Rent Account should be credited.
The alternative rules for debiting and crediting various accounts may be summarised as follows:
Assets: "Debit increase in an asset & Credit
decrease in an asset"
Liabilities: "Debit decrease in a liability & Credit
increase in a liability"
Capital: "Debit decrease in capital & Credit increase
in capital"
Incomes and Gains: "Debit decrease in an income & Credit increase in an
income"
Expenses and Losses: "Debit increase in an
expense & Credit decrease
in an expense"
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