Name: DEBIT & CREDIT | Golden Rules of Accounts | Accounting | LetsTute Accountancy
Uploaded: 2016-12-24T05:20:05.000Z
Duration: 10 min 16 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

In this session we are going to learn that every transaction has two effects i.e. Every

Debit must have a corresponding Credit effect & there are some rules of debit & credit for

personal, real & nominal accounts Introduction

In our previous session we have seen how all accounts are classified into real, personal

& nominal accounts. We also have an idea about the dual aspect

concept or the double entry system of accounting which states that every transaction has 2

equal effects. Without recording both the effects or dual effects in books of accounts

our record will be incomplete or imbalance & it will show a wrong status

. Lets go one step further and talk about what

are these two equal effects . one of these two effects is always a Debit and the other

effect is always a Credit So What are these terms debit and credit ?they

are just formal bookkeeping and accounting terms that have opposite meanings .These are

like the pillarsof accounting on which the entire accounting is based...

Now lets proceed further, A few days ago I was at my friend Peters grocery

store and was checking to see how is He keeping his records??

1. Sold goods to Mr. Adam worth $500 on credIT here peter has credited Adams Account & debited

goods account 2. Purchased goods from Mr. Alfred worth $600

on credit here he has debited Mr. Alfreds Account & credited goods account

3. Furniture Purchased worth $200 from Mr. Roy here peter has debited Roys account & credited

furniture account 4. Salary Paid to the Joy worth $100 here

peter has debited joys account & credited cash account

5. Commission received from Mr. Philip worth $200 here peter has debited cash account & credited

commission account Here we have picked 5 random transactions

from Peters book and we are going to analyse each one of them. (pause 5 secs) (on screen

transactions with entries will appear) So the first transaction is

1. Peter sold goods to Mr. Adam worth $500 on credit. & payment would be made in 15 days..

Goods a/c credit Now this is a sales transaction,

To analyze this , the Imp thing to do is to find out which are the two accounts that will

be affected as per the dual aspect, Here goods have been sold so the Sales a/c

will be affected & second would be Mr. Adams account as the goods are sold on credit,

Next step is to classify these accounts into Real, Nominal or Personal,

As we have discussed in our previous session, all the incomes come under the nominal a/c.

therefore Sales is a nominal account (revenue). Like this,

Sales Nominal Account Credit &The accounts which relates to a person comes

under Personal account so Adams a/cis personal a/c

(being a person) Now the question is which account should we

debit & which should we credit? So, whenever a person receives a benefit in

form of goods or cash , the account of the Person is debited, by the amount of the benefit

Mr. Adams account is debited since he is the receiver of goods (benefit received)

Here we can say that, So Person who is in debt (debtor) is debited

& The second a/c affected, sales a/c.. which

is nominal a/c.It is like a revenue all revenues , incomes, and gains increase the profit of

the business. And so we credit them. So like we had seen that every debit has an equal

and corresponding credit effect here we have one debit and one credit effect.

So the correct entry is.. Mr. Adams account -Dr & Sales account -Cr

So now we will check every transaction in this way

Lets look at the second transaction.(at dis time following transaction will appear)

peter Purchased goods from Mr. Alfred worth $600, on credit & payment would be made in

20 days.. Now this is a purchase transactionAnd this

is Peters entry lets analyse itAlfreds A/c Debit

Goods A/c - Credit Here peter has debited Mr. Alfreds Account

& he has credited goods account 1. the 2 accounts affected ??

One is Mr. Alfred�s account (as the goods are purchased on credit & second is Purchase

account as the goods are purchased� 2.now here, Purchases comes under nominal

accounts (as it�s our expense) And Mr. Alfred -- personal account

3. Now we�ll come to the third step.. debit and credit

when a person gives benefit of goods or cash .. i.e the creditor his a/c iscredited, by

the amount of benefits given. So Mr. Alfreds account will be credited

So person who gives Credit .. creditor..is credited

The second a/c purchase a/c which is nominal a/c is An expense Now all expenses &losses

decreases the profit of the business. And hence they are debited.

Decrease profits debited increase profits credited Here one trick is The words debtor

& creditor itself is giving the answer i.e. DEBTOR (receiver of goods/services) = DEBIT

CREDITOR (giver of goods and services) = CREDIT Note that, only those purchase/sales transactions

where it is specifically mentioned that payment was in cash, is considered to be a cash transaction..

If cash is not mentioned it is assumed to be a credit transaction and so the debit or

credit effect will be given to the Partys name mentioned ..

Lets move on to the next transaction 3. Furniture Purchased worth $200 on cash from Mr. Roy

Lets see what peter has done Roys A/c Debit

Furniture A/c - Credit So here do you think Roy�s account should

be affected No, because this transaction is a cash transaction so, no party will be affected�

So in this case , furniture & cash are the 2 accounts affected.. and as we know assets

will come under real account ..both are real okay

Now, whenever an asset comes into the business through its or receipt, asset account is debited.

So here we have purchased furniture so furniture will be debited, Conversely, whenever assets

goes out of the business through its sales or payment, asset account is credited & here

we have paid cash so it will get credited Now next is

4. peter has paid salary to joy worth $100 Now here, the two accounts which are affected

are � salary a/c � & � cash a/c� Salary is Nominal account as its an expense

of the business So it will have debit effect right?..

& second is cash & it comes under real account as its an asset of the business..

Asset going out of the business ..so it will be credited. So second part is correct

5. Peter has received Commission from Mr. Philip worth $ 200

Cash A/c - Credit Now here ,Peter debited commission account

Now lets analyze this transaction, Fist step which are the two accounts???

One is commission & second is cash account 2nd...is classification??

Commission will come under nominal account as its income of the business

Cash will come under real account as it is an asset

So here we will debit cash account as we have received cash/asset

& we will credit commission as this is the income of the business

With this we have finished checking Peters book & rectified it we have also come across

through what is debit & Credit.. So far we have learned logical understanding of debit

& credit effect now here are some rules of each type of account�

So if we notice, So in first example we have debited the person

who is receiving the benefit (goods) & in second example we have credited the person

who is giving the benefit (goods) So when any transaction includes persons then