Page 68 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes 5.1.1 Rules of Debiting and Crediting in Journal

In the Journal the business transactions of the financial nature are recorded on the basis of debit
and credit. The accounts are debited and credited on the basis of following rules. These rules are
based on the english classification of accounts.
1. 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

Receiver is debited (Dr.)
Giver is credited (Cr.)
2. 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:

‘What comes in’ is debited
‘What goes out’ is credited
3. 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:

Expenses and Losses are debited
Incomes and Gains are credited
At the time of Journalising of the transactions, when an account is debited it is denoted by ‘Dr.’ and
crediting of an account by ‘To’. When a transaction is recorded first of all its two aspects (accounts)
are identified, those may of the same group (same type of account) or different groups (different
types of accounts). Then the rules of debiting and crediting are applied. On the completion of a
page of the Journal it is totaled and the balance is carried forward to the next page.
Illustration 1: Journalise the following transactions in the books of Mr. Ram Krishna:
2007 ( )

July 1 Mr. Ram Krishna Started business with cash 2,00,000
July 4 Goods purchased in cash 20,000
July 5 He deposited in Bank 40,000
July 7 Goods sold 15,000

July 10 Goods purchased from Mr. Kamlesh on credit 25,000
July 11 Furniture purchased 18,000
July 12 Wages paid 4,000
July 20 Interest received 500

July 25 Cash paid to Mr. Kamlesh 25,000
July 30 Additional capital brought by Mr. Ram Krishna 50,000

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