Debit and Credit Rules, T account, Bookkeeping Course

BOOKKEEPING COURSE: THE DEBIT AND CREDIT RULES

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THE DEBIT AND CREDIT RULES

	Type of Account	To Debit the Account	To Credit the Account
1.	Personal	When the person whose in whose name the account is kept is in debt to us	When the person in whose name the account is kept is in credit with us
2.	Real	When the account received money/the equivalent	When the account gives us money/the equivalent
3.	Profit and Loss	Any account that ends with the words 'Expense Accounts'.	Any account that ends with the words 'Revenue Account'

Comprehensive Example:

1. 1.1.xx We bought goods from Waterman for an overall sum of $ 1,000 (Invoice No. 123).
2. 2.1.xx We sold part of the goods for $ 600 cash (Receipt No. 1950)
3. 3.1.xx We paid $ 200 cash for electricity expenses (Expense Voucher 001).
4. 4.1.xx We bought a store from Max for $ 20,000 (Invoice No. 953).
5. 5,1,xx We rented the store out for $ 700 cash (Invoice No.001)

We will practice making the bookkeeping records that are the subject of the above table (Comment: In the first part of the solution, the records will be presented in the form of a T account, and they will be presented textually in the second part. This will be explained more fully later on.

T ACCOUNTS

Goods	Account
Debit	Credit
(1) 1,000	600 (2)

Waterman	Account
Debit	Credit
	1,000 (1)

Cash	Account
Debit	Credit
(2) 600 (5) 700	200 (3)

Electricity Expe	nses Account
Debit	Credit
(3) 200

Store	Account
Debit	Credit
(4) 20,000

Max	Account
Debit	Credit
	20,000 (4)

Store Ren	tal Account
Debit	Credit
	700 (5)

Textual Records (Journal Entries)

	Debit	Credit
(1) Debit Goods Account Credit: Waterman Account 1.1.xx Purchase on credit Invoice 123	1,000	1,000
(2) Debit: Cash Account Credit: Goods Account 2.1.xx Cash Sale, Receipt 1950	600	600
(3) Debit: Electricity Expenses Credit: Cash 3.1.xx Cash payment, Expenses Voucher 001	200	200
(4) Debit: Store Account Credit: Max Account 4.1.xx Purchase of Store, Account 953	20,000	20,000
(5) Debit: Cash Credit: Income from Rental 5.1.xx Cash Rental Account 001	700	700
	22,500	22,500

Let's go over the entries together:

Event 1:

The Goods Account (a real account) is debited - because an account was received (Rule 1 in the table).

The Waterman Account, (a personal account) is credited - as it is due to receive money (Rule 2 in the table).

Event 2:

The Cash Account (a real account) is debited - because the cash was received (Rule 2 in the table)
The Goods Account (a real account) is credited - because the warehouse issued goods (Rule 2 in the table).

Event 3:

The Electricity Expenses - (A profit and loss account) is debited - as every expense account is debited (Rule 3 in the table).

Event 4:

The Store Account (a real account) is debited - the transaction received a monetary value (Rule 2 in the table).
The Max Account (a personal account) is credited - according to Rules 1 or 2.

Event 5:

The Income from the Rental Account (a profit and loss account) is a credit - as all receipts are a credit (Rule 3 in the table).
The Cash Account is debited - according to Rule 2 in the table.

Comment: It is easy to remember that every expense account is debited (the expense is a negative matter from an economic point of view and it is a debt of the business).Similarly, all receipts are a credit (a credit is something positive from an economic point of view and it is to the credit of the business). An additional stage that should be emphasized is that the first part (the T - Accounts) in fact serve us as a draft for the purpose of illustrating the records. In actual fact, the bookkeeping records are only inwords, the professional term for each record being a "Journal Entry: (or a "journal voucher").

The Development of Bookkeeping The debit & credit rules Journal Entries Nominal Ledger Trial Balance Annual Statements (Profit & Loss/Balance Sheet) The Balance Sheet
Bank Reconciliation Salaries Tax Deduction at Source Value added tax

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