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Unit 2: Double Entry System

2.4 Rules of Double Entry Accounting System Notes

In Double Entry accounting both the aspects of the transaction are recorded. Every transaction has
two aspects and according to this system, both the aspects are recorded. If the business acquires
something, it must have been acquired by giving something. While recording each transaction,
the total amount debited must be equal to the total amount credited. The terms Debit’ and ‘Credit’
indicate whether the transaction is to be recorded on he left hand side or right hand side of the
account. In its simplest form, an account looks like the English Language Letter ‘T’. Because of its
shape, his simple form of account is called T-account.

In a T’ account, the left side is called debit (usually abbreviated as Dr.) and the right side is known
as credit (as usually abbreviated Cr.).
The following are the key rules of debiting and crediting under double entry system of
accounting:
1. In case of traditional type of accounts
(a) Personal Account: If in a transaction, a person receives something in cash or goods, it
is debited and if that person gives, that is credited. Debit account is denoted by ‘Dr.’
while credit account is denoted by ‘Cr.’ In brief, the rule of personal account is
Debit the Receiver (Dr.)
Credit the Giver (Cr.)

(b) Real Account: If in a transaction, the assets are coming into business, they are debited
and if those are going outside from business, they are credited. Thus these rules are
as below:
Debit what comes in (Dr.)
Credit what goes out. (Cr.)
(c) Nominal Account: The rules of debiting and crediting of nominal account are–the

expenses and losses of the business are debited and the gains and profit of the
business are credited. In brief the rules are:
Debit all expenses and losses (Dr.)

Credit all gains profits or incomes (Cr.)

2. In case of modern classification of account also known as classification based on accounting

equation
Capital (Owned and Borrowed) = Assets
Thus, Total Assets – Borrowed = Capital
We also know that if there is a change on one side. The other side is bound to be affected.
This change occurs because of the concept of dual aspect.

Technically, when some transaction is entered/recorded on the left hand side of an account
it is termed as debit whereas when some transaction is recorded/entered on the right hand
side of an account, it is termed as credit. Both debit and credit result, either an increase or
decrease depending upon the nature of an account.

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