Rules of Debit and Credit: Made Simple

Rules of Debit and Credit are very simple in accounting. All the accounting heads in the business are basically divided into three types of accounts and rules of debit and credit are formed.
Personal Accounts

• These accounts represents individual persons and organisations. Debtors and Creditors are recorded under personal accounts.

         Rules:

         Debit, The Receiver: It means the person who receives some value or cash should be debited.

         Credit, The Giver: It means the person who gives some value or cash should be credited. 

Real Accounts

• These accounts represents the value of assets. All the assets come under this account, whether tangible or intangible. 

          Rules:

          Debit, What Comes In: It means any assets that comes into our possession should be debited.

          Credit, What goes Out: It means any assets that goes out from us should be credited.

Nominal Accounts

• These are the accounts which relates to financial transactions of a business. It represents the revenues, expenses, gain and losses of business.

     

          Rules:

          Debit, All Expenses and Losses: It means all the items of expenses and losses should be debited.  

          Credit, All Incomes and Gains: It means all the items of incomes and gains should be credited.

 Examples: 

• Purchase of goods from Mr. Y for 5,000. 

        Purchase Account.....................Dr                                         5,000

                            To Mr. Y Account                                                                               5,000  

       (Being goods purchased from Mr.Y on credit)             

Here, Goods have been purchased, therefore goods being the asset belongs to Real Accounts and the rule Debit, What comes in applies here. The value of goods have been debited with head Purchase Account. 

Similarly, Mr. Y belongs to Personal account and the Rule Credit,The Giver applies here. 

• Purchase of furniture for 20,000 in cash.          

         Furniture Account......................Dr                                        20,000
                            To Cash Account                                                                                 20,000
         (Being furniture purchased in Cash)
Here, Furniture is an asset which is purchased, Furniture comes in so we debit the Furniture Account. The Rule of Real Account Debit, What Comes In applies here.
Similarly, we paid Cash(asset) for purchase of Furniture, It means Cash goes out. The Rule of Real Account Credit, What goes out applies here.

• Rent of Shop paid to Landlord 30,000. 

         Rent Account..........................Dr                                             30,000

                           To Cash Account                                                                                  30,000

       (Being shop rent paid to landlord)

Here, Rent is an item of expense which belongs to Nominal Account. So the rule Debit, All Expenses and Losses applies here.

Similarly, Cash, being the Real Asset, goes out. So the Rule Credit, What Goes Out applies here.

• Commission received in Cash 15,000.

         Cash Account...........................Dr                                           15,000

                            To Commission Account                                                                      15,000

        (Being commission received)

Here, Cash comes in, so it is debited as we know we should debit the assets that comes in. 

Similarly, Commission received is an income which belongs to Nominal Account therefore the rule Credit, All Incomes and Gains applies here. 

• Cash Deposited into Bank 45,000

            Bank Account...............................Dr                                   45,000

                              To Cash Account                                                                                   45,000

        (Being Cash Deposited into Bank)

Here, Bank, being the personal account, is debited being the Receiver. The rule Debit, The Receiver applies here. 

Similarly, Cash goes out into bank, therefore Cash is credited. The rule Credit, What goes out applies here. 

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Hey, How do you Read?

Reading Skills
Reading Skill is the most basic trait or requirement which is needed to excel in any field. Reading Skills are specific abilities which empowers an individual enabling him to:

• draw the meaning out of a written form of language
• interpret the meaning with fluency and comprehension, and
• form the mental picture of the written message.

Prominence of Reading Skills

• Improves your writing, speaking and presentation skills.
• Develops your ability to think critically and make connections with our own lives.
• Builds your knowledge in variety of areas depending on subject matter of what we read.
• Fosters your writing and language skills to excel in academic and professional career.

Tactics to unfold Reading Skills
For quick and constructive reading following tactics should be followed:

• Sneak peek or Preview the title, headings, captions to pick up the general idea of the content and structure of a reading material.
• Predict or forecast the content structure and main idea of the text or a writing based on prior knowledge and clues appearing in the text like pictures,illustrations,etc.
• Flick through the text before actual reading so that a general idea of the text can be perceived and also previous predictions can be confirmed.
• Conjecture the meaning of new or unknown words or text from the words accompanying it.For example: "We wish him happiness and prosperity on the occasion of his birthday." Here, meaning of word prosperity can be conjectured or guessed from the accompanying word 'happiness'.
• Paraphrasing is the ultimate tactic to understand the meaning of the text with clarity. Difficult portions and sections of the text can be rephrased into simple words to give it a simple and clear meaning.          

Other Skills 

• Increasing reading activities can help build vocabulary for enhancing the reading skills.For building vocabulary informative magazines and newspapers are also useful.
• Using dictionary for new or difficult words and making notes of those words with meaning helps in retaining it for long time.
• Instead of reading a text word-by-word form a grouping of words and habituate yourself viewing the meaning of sentence in blocks.
• For increasing the focus and maintaining consistent eye motion using of fingers to point at the text while reading is useful.

As a closure,Reading good materials and texts feeds the mind with healthy ingredients. Cultivating the reading culture in ourselves upgrades our intellectual capacity. Be a Reader, Be a Leader. :-)

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