Rules of Debit and Credit Class 11

Rules of Debit and Credit . sometimes also referred to as the Golden Rules of Debit and Credit, are the fundamental (most basic) basis of  Double Entry bookkeeping. These rules, lays down, how the accounting is to be performed in respect of various expenses/income, assets/liabilities amongst others, and are summarized as under : –

Rule 1 of Rules of Debit and Credit – Increase or Decrease in Asset

When Assets are increased, the Asset account is debited , and when assets are reduced or decreased, the Asset  account is credited. The Asset accounts could be like Plant and Machinery, Furniture, Stock , Debtors, Building, Intangible Assets like Goodwill etc.

Journal Entry when Assets are increased

What would be the Journal Entry for Purchase of Building for  Rs. 10,000 in Cash ?

Explanation:

Since Purchase of Building results in an increase in the value of Building (which is an Asset), Building A/c would be debited, as an increase in an asset   A/c is debited .

Further , on   Purchases of Building  in Cash ,  there is a in reduction of Cash, which is an Asset. When an asset is reduced, the asset account is credited and hence Cash A/c would credited.

Hence the correct entry is:

Building A/c Dr. 10,000
To Cash A/c 10,000

Journal Entry when Assets are decreased

What would be the Journal Entry for Sale of  Plant and Machinery for  Rs. 10,000 in Cash ?

Explanation:

Since Sale of Plant and Machinery  results in a decrease in the value of Plant and Machinery (which is an Asset), Plant and Machinery A/c would be credited, as a decrease in an asset   A/c is credited .

Further , on  Sale of Plant and Machinery in Cash ,  Cash is received and there  is an increase  of Cash, which is an Asset. When an asset is increased, the asset account is debited and hence Cash A/c would debited.

Hence the correct entry is:

Cash A/c Dr. 10,000
To Plant and Machinery A/c 10,000

Rule 2 of Rules of Debit and Credit – Increase or Decrease in Liabilities

When Liabilities are increased, the liability account is credited and when liabilities are reduced  decreased, liabilities account is debited. Liabilities could be creditors, expense payable etc.

Journal Entry when Liabilities are increased

What would be the Journal Entry for purchase of Furniture  amounting to Rs. 10,000 from Nived on credit ?

Explanation:

Purchase of Furniture results in an increase in the value of Furniture, which is an asset. Furniture A/c would be debited, because according to the Rules of Debit and Credit, an increase in an asset   A/c is debited .

Further , on   Purchases of Furniture  on Credit from Nived, the company incurs a liability towards Nived,  or in other words the liability of the company is increased.

When a  liability is  increased, the liability account is credited ,   as according to the Rules of Debit and Credit,   an increase in liability account is credited. Hence account of Nived would be credited.

Hence the correct entry is : –
Furniture A/c Dr. 10,000
To Nived A/c 10,000

Journal Entry when Liabilities are decreased

What would be the Journal Entry for payment to Nived in the above example ?

Explanation:

Payment to a creditor results in decrease in  Cash, which is an Asset. When an asset is reduced, the asset account is credited and hence Cash A/c would credited.

Further , on   payment to Nived, the company reduces a liability towards Nived,  or in other words the liability of the company is decreased.

When a  liability is  decreased, the liability account is debited ,   as according to the Rules of Debit and Credit,   decrease in liability account is debited. Hence account of Nived would be debited.

Hence the correct entry is : –
Nived A/c Dr. 10,000
To Cash A/c 10,000

Rule 3 of Rules of Debit and Credit  – Increase or Decrease in Capital

When the owners’ bring funds into business, owner’s capital is increased , and capital account  is credited .

However, when  owners’ withdraw  funds business,  owners’ capital account, also sometime referred to as the  Drawings A/c  or Capital account  is debited , i.e. the owner capital is reduced.

Profit in business leads to increase in capital account , and is therefore credited to the owners’ capital account.

Losses leads to reduction in capital account and is therefore debited to the owners’ capital account.

Rule 4 of Rules of Debit and Credit – Personal Accounts – Debit the Receiver and Credit the giver

A personal account , is an account or a ledger , which relates to  individuals (Like Ram, Shyam, Rahim), firms (partnership firms Limited Liability Partnerships) ,Associations and companies. The goldern rule of Accounting relating to Personal Accounts is,  Debit the Receiver and Credit the giver.

Let us take an example ; A , an individual , pays Rs. 10,000 to B, another individual.

In this example A and B, are Personal Account, since they relate to individuals

In Books of A,  B’s account will be debited as B is the receiver of money.

In Books of B, A’s account will be credited as he is the giver of money.

Rule 5 of Rules of Debit and Credit – Real account – Debit what comes in credit what goes out

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.

Rule 6  of Rules of Debit and Credit – Nominal account – Debit all expenses and losses and credit all profits and income

If salary is paid, we  will debit the salary account as it is an expense,  whereas any interest received will be credited to the interest account, as it is a profit. Other example of expenses can be rent, rates and taxes, telephone. Example of income could be Sales, interest income on deposit etc.

Share on whatsapp
Share on facebook
Share on twitter
Share on linkedin
Share on email

2 thoughts on “Rules of Debit and Credit Class 11”

Leave a Comment