Dr - What comes in
Cr - What goes out
Examples of this kind of transaction include cash/bank and rent.
Debit is the receiver.
Credit is the giver.
An example of this kind of transaction is Vendor/Customer relations.
All gains and income are credit.
All losses and expenses are debit.
An example of this kind of transaction is sales and/or purchases.
1 This principle is applied in case of real accounts. Real accounts involve machinery, land and building etc. They have a debit balance by default. Thus when you debit what comes in, you are adding to the existing account balance. This is exactly what needs to be done. Similarly when you credit what goes out, you are reducing the account balance when a tangible asset goes out of the organization.
2 This rule is applied when the account in question is a nominal account. The capital of the company is a liability. Therefore it has a default credit balance. When you credit all incomes and gains, you increase the capital and by debiting expenses and losses, you decrease the capital. This is exactly what needs to be done for the system to stay in balanc
3 This principle is used in the case of personal accounts. When a person gives something to the organization, it becomes an inflow and therefore the person must be credit in the books of accounts. The converse of this is also true, which is why the receiver needs to be debited.
The following are the rules of debit and credit which guide the system of accounts, they are known as the Golden Rules of accountancy: First: Debit what comes in, Credit what goes out.Second: Debit all expenses and losses, Credit all incomes and gains.Third: Debit the receiver, Credit the giver.
three rules of accounting 1 personal account: which deals with persons like ram a/c rule: debit the reciever credit the giver 2.Real account:it deals with assets like machinery,furniture etc Rule: debit what comes in credit what goes out 3.nominal account : it deals with expenses,losses and incomes.gains Rule: debit all expenses and losses credit all incomes and gains.......
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