![]() Let us take an example – If we purchase goods, we will debit the purchase account as goods are coming into the business, whereas if goods are sold, we will credit the sales account as goods are going out of business. ![]() Debit Credit Rules – Rule 5 – Real account – Debit what comes in credit what goes out In Books of C, B’s account will be credited as he is the giver. In Books of B, C’s account will be debited as B is the receiver. In this example B and C, are Personal Account. Whereas losses leads to reduction in capital account and is therefore debited to the owners’ capital accoun Debit Credit Rules – Rule 4 – Personal Accounts – Debit the Receiver and Credit the giver Profit leads to increase in capital account, and is therefore credited to the owners’ capital account When the owners’ capital is increased as they bring funds into business, capital account is credited to the owners’ capital account, whereas when amount is withdrawn from the owners’ capital account, i.e drawings are made, it is debited to the capital account i.e. Liabilities could be creditors, expense payable etc.ĭebit Credit Rules – Rule 3 – Increase or Decrease in Capital When Liabilities are increased, the liability account is credited and when liabilities are decreased, liabilities account is debited. ![]() Debit Credit Rules – Rule 2 – Increase or Decrease in Liabilities The Asset accounts could be like Plant and Machinery, Furniture, Stock etc. When assets are increased, the Asset account is debited and when assets are reduced or decreased, the Asset account is credited. Debit Credit Rules – Rule 1 – Increase or Decrease in Asset Therefore, the cash account will be credited with the same amount that has been debited, as purchase would reduce the cash (Decrease in Asset, i.e, cash is credited). When we purchase goods, we pay cash for it. Therefore, we will debit the Purchase account (Increase in Asset is debited). įor example, if someone purchases goods, such purchase would increase the goods or an asset. If one account is debited, another account/s, will be credited with the same amount. Debit Credit Rules are applied to every transaction recorded in the books of accounts.
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