Question

Briefly state the rules of debiting and crediting a/c classified on the basis of accounting equation.

Answer 1

Answer:

IN CASE OF PERSONAL ACCOUNT:

Debit the giver

Credit the reciever

IN CASE OF REAL ACCOUNT:

Debit what comes in

Credit what goes out

IN CASE OF NOMINAL ACCOUNT

Debit all income and gains

Credit all expense and losses

Explanation:

Debit Increase in Asset and Decrease in Liability

Credit Increase in Liability and Decrease in Asset

Debit Increase in Expense and Decrease in Income

Credit Decrease in Expense and Increase in Income

Debit Decrease in Equity/Capital

Credit Increase in Equity/Capital

Answer 2

ANSWER :

The accounting equation forms the basis for double entry system if accounting. Under double entry principle, every debit must have equal and correspondeing credit and hence, the net effect of the debit and credit is reflected in the elements of a balance sheet. The elements of a balance sheet are :

• (i) Assets, (ii) Liabilities and (iii) Capital.

When the relationship that exists among assets, liabilities and capital are expressed in the form of an equation, it is known as an Accounting Equation. The Accounting Equation is :-

$\: \: \: \: \: \: \: \: \boxed{ \sf{ \: \: Assets = Capital + Liabilities \: \: }}$

➤ Here the rules of debiting and crediting accounts classified on the basis of accounting equation :

➲ Assets Account :-

• [1] When there is an increase in the Asset, it is 'Debited'.

• [2] When there is a decrease in the Asset, it is 'Credited'.

➲ Capital Account :-

• [1] When there is an increase in the Capital, it is 'Credited'.

• [2] When there is a decrease in the Capital, it is 'Debited'.

➲ Liabilities Account:-

• [1] When there is an increase in the Liabilities, it is 'Credited'.

• [2] When there is a decrease in the Liabilities, it is 'Debited'.

MORE INFORMATION :

There are two approaches for classification of Accounts. Hence, there are different rules for debiting and crediting the accounts on the basis of classification of the account. These are as follows :-

➤ Rules for Debit and Credit under English Approach or Traditional Approach of classification of Accounts :

➲ In case of Personal Accounts :-

• [1] Debit is the Receiver of the benefit.

• [2] Credit is the Giver of the benefit.

➲ In case of Real Accounts :-

• [1] Debit what Comes in.

• [2] Credit what Goes out.

➲ In case of Nominal Accounts :-

• [1] Debit all Expenses and Losses.

• [2] Credit all Incomes and Gains.

➤ Rules for Debit and Credit under American Approach or Modern Approach of classification of Accounts :

➲ Assets Account :-

• [1] When there is an increase in the Asset, it is 'Debited'.

• [2] When there is a decrease in the Asset, it is 'Credited'.

➲ Liabilities Account:-

• [1] When there is an increase in the Liabilities, it is 'Credited'.

• [2] When there is a decrease in the Liabilities, it is 'Debited'.

➲ Capital Account :-

• [1] When there is an increase in the Capital, it is 'Credited'.

• [2] When there is a decrease in the Capital, it is 'Debited'.

➲ Revenue Account :-

• [1] When there is an increase in the Revenue, it is 'Credited'.

• [2] When there is a decrease in the Revenue, it is 'Debited'.

➲ Expense Account :-

• [1] When there is an increase in the Expense, it is 'Debited'.

• [2] When there is a decrease in the Expense, it is 'Credited'.