Commerce Exam > Commerce Notes > Rules of Debit and Credit -Accountancy, Class 11
Rules of Debit and Credit -Accountancy, Class 11 - Commerce PDF Download
Rules of debit and credit type numerical. questions plz explain?
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Rules of debit and credit
(1). Asset accounts:
Normal balance: Debit
Rule: An increase is recorded on the debit side and a decrease is recorded on the credit side of all asset accounts.
(2). Expense accounts:
Normal balance: Debit
Rule: An increase is recorded on the debit side and a decrease is recorded on the credit side of all expense accounts.
(3). Liability accounts:
Normal balance: Credit
Rule: An increase is recorded on the credit side and a decrease is recorded on the debit side of all liability accounts.
(4). Revenue/Income accounts:
Normal balance: Credit
Rule: An increase is recorded on the credit side and a decrease is recorded on the debit side of all revenue accounts.
(5). Capital/Equity accounts:
Normal balance: Credit
Rule: An increase is recorded on the credit side and a decrease is recorded on the debit side of all equity accounts.
(6) Contra accounts:
Normal balance: Opposite to the normal account.
An example: Accounts receivable is an asset account that normally has a debit balance. The allowance for doubtful accounts is a contra account to the accounts receivable and normally has a credit (opposite) balance.
Rule: If the normal balance of the contra account is debit, the increase will be recorded on the debit side and the decrease will be recorded on the credit side. If the normal balance of the contra account is credit, the increase is recorded on the credit side and the decrease is recorded on the debit side.
A summary of the whole discussion about rules of debit and credit is given below:
Example:
The following transactions are related to Small Traders:
- Started business with cash $95,000.
- Purchased furniture for cash $8,000.
- Purchased goods for cash $40,000.
- Purchased goods on credit from Big Traders $57,000.
- Sold goods for cash $5,000.
- Purchased equipment for business $4,000.
- Sold goods on credit to John Retailers $15,000.
- Paid salary to employees $1,200
Required: Identify the accounts involved in above transactions and state the nature of each account. Also mention how increases or decreases in accounts resulting from above transactions should be recorded.
Solution:
FAQs on Rules of Debit and Credit -Accountancy, Class 11 - Commerce
| 1. What are the rules of debit and credit in accountancy? |  |
Ans. In accountancy, the rules of debit and credit are used to record transactions in the books of accounts. The basic rules are as follows:
- Debit the receiver, credit the giver: When an asset or expense is received, it is debited, and when it is given, it is credited.
- Debit what comes in, credit what goes out: When there is an increase in assets or expenses, it is debited, and when there is a decrease, it is credited.
- Debit all expenses and losses, credit all incomes and gains: Expenses and losses are debited as they decrease the capital, while incomes and gains are credited as they increase the capital.
- Debit the increase in liability, credit the decrease in liability: When there is an increase in liabilities, it is debited, and when there is a decrease, it is credited.
- Debit the decrease in capital, credit the increase in capital: When there is a decrease in capital, it is debited, and when there is an increase, it is credited.
| 2. How do you apply the rules of debit and credit in accountancy? | |
Ans. To apply the rules of debit and credit in accountancy, you need to analyze the nature of the accounts involved in a transaction. The following steps can help:
1. Identify the accounts involved: Determine which accounts are affected by the transaction.
2. Determine the type of account: Classify the accounts as assets, liabilities, capital, expenses, or incomes.
3. Apply the rules: Based on the nature of the accounts, apply the appropriate rule of debit or credit. Debit the account if the rule calls for it, and credit the account if necessary.
4. Maintain the accounting equation: Ensure that the accounting equation (Assets = Liabilities + Capital) remains balanced after applying the rules of debit and credit.
| 3. What is the significance of the rules of debit and credit in accountancy? | |
Ans. The rules of debit and credit play a crucial role in maintaining accurate and consistent financial records. Some of their significant aspects are:
- Uniformity: The rules provide a standardized method for recording transactions, ensuring consistency in the accounting process across different organizations.
- Clarity: By following the rules, it becomes easier to understand and interpret financial transactions, making it simpler to analyze the financial position of a business.
- Accuracy: The rules help in accurately recording and classifying transactions, reducing the chances of errors and misinterpretation.
- Financial Analysis: The proper application of debit and credit rules allows for the preparation of reliable financial statements and facilitates financial analysis for decision-making.
| 4. Can the rules of debit and credit be applied in any situation? | |
Ans. While the rules of debit and credit provide a framework for recording transactions, there can be situations that require judgment and adjustment. Some complex transactions may not fit directly into the rules and may require additional analysis. In such cases, accountants use their professional judgment to determine the appropriate treatment based on the specific circumstances.
| 5. Are there any exceptions to the rules of debit and credit? | |
Ans. Yes, there are a few exceptions to the rules of debit and credit. For example:
- The purchase of an asset on credit: While the general rule is to debit the increase in assets, when an asset is purchased on credit, it is credited as a liability is incurred.
- Contra accounts: Certain accounts have opposite rules for debit and credit. For example, contra revenue accounts are credited instead of debited, representing deductions from gross revenues.
- Accruals and deferrals: In accrual accounting, some transactions involve recognizing revenues or expenses before they are received or paid. These transactions may require adjustments that deviate from the general rules of debit and credit.
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