Debit and Credit rules are easy to remember. A secret formula behind these factors. The two terms are very important in accounting subject DEBIT and CREDIT. Debit and credit are formal bookkeeping and accounting terms. Debits and Credits are the most fundamental concepts in accounting.
Origin of the terms Debit and Credit Rules
The terms Debit and Credit rules are drives from Latin words. The word Debit means Debitum it means Due for that. Debit comes from debere, which means “to owe”. The Latin debitum means “debt”. The word Credit is derived from the latin word Credir it means Due to that. Credit comes from the Latin word credere, which means “to believe” or “to entrust”. It is more common to use the plural terms “Debits” and “Credits” or Generally Debit and Credit. You need to learn some basic tutorials about these topics.
The Abbreviations ‘Dr’ for DEBIT and ‘Cr’ for credit are usually used in accounts. This is the one of the first debit and credit rules. Historically the Debit side of an account is the left hand side of a general ledger account, while the Credit side of an account refers to the right hand side.
In accounting is top question asked by lot of financial institutions. Debit and credit rules table helps you to remember easily. If you go to any interview you must know some basic accounting terms. For example I recommend one book – Accounting 101 for Dummies.
You can learn lot of accounting help topics from this book. Lot of accounting students buy this book for gaining knowledge. Understanding basic accounting is funny and well worthy way for accounting professionals. In double entry bookkeeping, debits and credits (abbreviated Dr and Cr, respectively) are entries made in account ledgers to record changes in value due to business transactions.
Generally speaking, the source account for the transaction is credited (an entry is made on the right side of the account’s ledger) and the destination account is debited (an entry is made on the left). Each transaction’s debit entries must equal its credit entries.
– Every transactions in accounts has two aspects and both are tally
– Double Entry Accounts = DEBIT and CREDIT
– Accounts = DEBIT and CREDIT
– The account should be totalled, i.e., in both debit and credit are equal, because the dual aspects here followed.
Here’s a Quick Way to Understand Debit Account
The difference between the total debits and total credits in a single account is the account’s balance. If debits exceed credits, the account has a debit balance; if credits exceed debits, the account has a credit balance. If the value of the debits is greater than the value of the credits, then the balance on the account is a debit balance and should not be described as a positive value balance, but should be described as an account with a debit balance.
Debit can be abbreviated as Dr. in left side of the account, while credit can be abbreviated as Cr. In right side of the account. Payment debited from your debit account, similarly transactions credited from your credit account. Easy to remember!
Debit entries are made on the left side of the vertical line and credit entries are made on the right side of the vertical line. Debits and credits are neither positive nor negative amounts. The balance on an account is either a debit or a credit, not a positive or a negative value.
DEBIT an increase in one of the accounts with a normal balance of debit or a decrease in one of the accounts with a normal balance of credit. A debit is recorded on the left hand side of a T account. CREDIT an increase in one of the accounts with a normal balance of credit or a decrease in one of the accounts with a normal balance of debit. A credit balance is recorded on the right hand side of a ‘T’ account.
If you see in this topic is important. In accounting it is important first to understand the account type then only we would prepare the accounts. The object of accounts is to keep a complete record of all the transactions that take place in the business.
In business and other type of activities relating to commerce, practically every business deals with
– Other persons, firms and companies
– Possesses assets like cash, stock, building, furniture etc., and also receives incomes such as interest, commission, rent etc.
It is important and needed to maintain the following to record all the above mentioned dealings
1. An account of each person, firm, or company, society, body of individuals with which the business deals.
The accounts under this class are known as called PERSONAL ACCOUNTS
2. An account of each type of asset which a business owns. It comes under the class of REAL ACCOUNTS.
3. An account of each expense and gain. The accounts under this class are known NOMINAL ACCOUNTS.
An account is a statement in the ledger which records the transactions relevant to the person, asset, expense or profit named in the heading. Accounts can be divided into –
1. Personal accounts
2. Impersonal accounts, it can be further divided into real accounts and nominal accounts.
The accounts type are classified as per the activities of business, there are three types or kinds of accounts maintained by a business, namely-
1. Personal Accounts
2. Real Accounts
3. Nominal Accounts
The above the all three accounts are discussed in detail in the following manner
1. Personal Accounts :
Accounts of persons with whom the business has transactions are called as Personal Accounts. The following are the persons as classified under this type of accounts.
– Natural persons – the name of an individual
i.e., suppliers, debtors – example – Anna’s Account
– Raju’s Account
– Malar’s Account
– Tamil’s Account
– Raj’s Account
In view of the above persons both male and female person are natural person are included in this account type.
– Artificial Person or Legal Person, Bodies – Creation of persons by Law
Firm’s Accounts, Company’s Accounts, Society’s Accounts, Bank’s Accounts, Club’s Accounts, local authority’s Accounts, Educational Institutions’ Accounts, are classified as artificial persons’ accounts.
– Representative Personal Accounts
This accounts are apart from the above two type of accounts, all accounts representing outstanding expenses, prepaid expenses and accrued incomes, advance receipts are personal accounts.
Prepaid Expenses, outstanding Salaries, Rent payable etc.
Business is started by person and name is provided for business as a entity, here the person is called proprietor, and business is separate entity is person, hence both are the person as classified under the personal account head. The proprietor is represented by capital account for all the he invests into business and also get back it called as drawings accounts for all that proprietor withdraws from the business.
So, now in accounting language the two accounts are capital account and drawing account are also personal accounts. If you have any questions regard debit and credit rules, feel free to contact me. Iam happy to help.
Originally posted 2013-11-06 10:04:38.