Question

Write down the rules of debit and credit as per modern approach​

Answer 1

Answer:

Rules for Debit and Credit

The golden rules of accountancy govern the rule of debit and credit. Before we examine further, we should know the three famous golden rules of accountancy:

First: Debit what comes in and credit what goes out.

Second: Debit all expenses and credit all incomes and gains.

Third: Debit the Receiver, Credit the giver.

To compress, the debit is 'Dr' and credit is 'Cr'. So, a ledger account, also known as a T-account, consists of two sides. As talked about earlier, the right-hand side (Cr) records credit transaction and the left-hand side (Dr) records the debit transaction.

Suppose we purchase machinery for the cash, this transaction will increase the machinery and decrease cash because machinery comes in and cash goes out of the business. Further, this increase in machinery and the decrease in cash is to be recorded in the machinery account and cash account respectively. This recording will also be detailed in the ledger account.

On which side the increase or decrease of the accounts appear? This is answered by studying the 'normal balance of accounts' and 'rules of debit and credit.' Understanding the normal balance will accelerate the learning of the rules.

The normal balance of all assets and expenditures accounts is always debit. We shall record the increment of this account on the debit side. If we need to decrease the account, we will record it on the credit side.

Next, the normal balance of all the liabilities and equity (or capital) accounts is always credit. To increase the account, we will record it on the credit side and to decrease the account, we will record on the debit side.

It only follows the opposing force or the vice versa factor.

A level up concept, Contra Accounts, is only opposite to the relevant accounts. The normal balance can be both debit or credit. Here, to neutralize this, contra account is used. To recall, the utmost rule of debit and credit is the total debits equal total credit which applies to all the totalled accounts.

Hope this will help you

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