Journal Entry: Rules of Debit and Credit and Types of Accounts

 

 

What are the Rules of Debit and Credit?

(1) Rules of Debit and Credit

According to double entry system of book-keeping, every financial transaction has two sides. 

They are debit and credit.

It means when a financial transaction occurs, there will be two affects.

Debit means decrease in owner’s equity and credit means increase in owner’s equity.

For the same reason:

Increase in assets means debit but decrease in assets means credit.

Increase in liabilities means credit but decrease in liabilities means debit.

 

Under the double entry system of bookkeeping, there are only three accounts.

They are personal account, real account and nominal account

 

In personal account:		In real account:		In nominal account:
Receiver Giver	Dr Cr	What comes in What goes out	Dr Cr	Expenses or loss Income or profit	Dr Cr

 

 

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Click on link for YouTube videos topic wise :
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger Account	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
Accounting Process	http://tiny.cc/mlersz
Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz

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How many accounts are there in accounting?

(2) Types of Accounts

In accounting, there are three types of accounts.

They are personal account, real account and nominal account.

 

(a) PERSONAL ACCOUNT

In this account, we record name of person, company, organization, institutes and firm.

There are three types of persons in accounting.

They are natural person, artificial person and representative person.

Natural person	Amitabh Bachchan, Rajesh Hamal, Fawad Khan, Vipul, Prathit, Aishwarya Rai, Eshna, Manju etc.
Artificial person	Reliance Industries Limited, Dabur Nepal, Delhi University, Tribhuvan University, EP Publication etc.
Representative person	Debtors, creditors etc.

 

There are two types of persons in personal account.

First is receiver person and second is giver person.

According to rule:

In personal account:			Increase or Decrease
Receiver Giver	Dr Cr		Increase debtor Decrease debtor	Dr Cr	Increase creditor Decrease creditor	Cr Dr

 

(b) REAL ACCOUNT

In real account, we record tangible and non-tangible assets.

Tangible assets are fixed assets and current assets.

Intangible assets are fictitious assets.

Fixed assets	land and building, plant and machinery, furniture and fitting, investment etc.
Current assets	cash, bank (cheque), stock* (inventory), debtors etc.
Fictitious assets	goodwill, trade mark, preliminary expenses etc.

 

There are two parties in real account.

First is comes-in and second is goes-out.

According to rule:

In real account:			Increase or Decrease
Comes in Goes out	Dr Cr		Increase asset Decrease asset	Dr Cr	Increase liability Decrease liability	Cr Dr

 

Keep in Mind (KIM)

Stock* or inventories or merchandise are classified into four groups: Business started with goods is opening stock. Purchase goods or stock is purchase. Sold goods or stock is sales. Unsold goods or stock is closing stock. Closing stock of current year becomes opening stock of next year.

 

(c) NOMINAL ACCOUNT

In nominal account, we record expenses and incomes, profit and loss of organization.

There are three types of heading for expenses.

They are factory expenses, office expenses, selling and distribution expenses.

Expenses	salary, wages, rent, stationery, telephone,  internet expenses, insurance etc.
Incomes	commission, interest, dividend, discount, rent received etc.

 

There are two types of nominal accounts.

First is expense or loss and second is income or profit.

According to rule:

In nominal account:			Increase or Decrease
Expense or loss Income or profit	Dr Cr		Increase expense Decrease expense	Dr Cr	Increase income Decrease income	Cr Dr

 

 

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