How to Use and Apply the Debit and Credit Rules:
Determine the type of account(s) the transactions
affect-asset, liability, revenue, or expense account. Determine if the transaction increases or decreases the account’s balance.
Apply the debit and credit rules based on the type of account and whether the balance of the account will increase or decrease.
We can understand these rules in another manner:
1.One who receives should be debited and one who gives credited-debit the receiver and credit the giver.
2.Debit what comes in and credit what goes out. This rule is mainly applicable to asset accounts like furniture etc. When cash comes in Cash account should be debited; on payments this account will be credited.
3.Whenever money is paid because of an expense, the debit should be to an account showing the nature of the expense and not to the personal account of the receiver. Similarly, when cash is received on account of an income or gain, the credit should be to an account indicating the fact-Debit all losses (and expenses) and credit all gains (and profits).
The three rules can be stated as:
1.Debit the receiver and credit the giver in case of personal account.
2.Debit what comes in and credit what goes out in case of Real Account.
3.Debit all expenses and losses, and credit all gains
and profits in case of Nominal account.
(1) Rule for personal accounts- Debit that per-
son’s account who receives something from
the business and credit that person’s account
who gives something to the business..
(ii)Rule for real account-Debit what comes into
the business and credit what goes out of the
(iii). Rule for expenses and incomes- Debit all expenses and losses and credit all gains and