RULES OF DEBIT AND CREDIT
TRADITIONAL APPROACH
Under this approach, all ledger accounts are mainly classified into two categories:
A. Personal accounts : It includes all those accounts which are related to any person i.e. individuals, firms, companies, Banks etc. This can further be classified into three categories :
1. Natural persons : All accounts of human eings/persons are included such as Ram's a/c, Shyam's a/c etc.
2. Artificial persons : This includes all accounts related to organizations which are treated as persons in the eyes of law and having all the legal rights as a natural person have such as buying/selling assets in its name, suing and be sued etc.Some of the examples are Reliance industries ltd. Punjab National Bank etc.
3. Representative persons : In this category, accounts which represents some person are included e.g. Capital a/c (representing Owner), Outstanding salary (representing the employee to whom salary is due) etc.
B. Impersonal accounts : all ledger accounts which are not related to persons are included in this category. This can be classified as :
1. Real accounts : under this category, mainly assets (excluding debtors) are included. These assets can be tangible (which can be touched, seen and measured such as furniture, cash, stock etc.) and intangible (which can't be seen, touched or measured but still have monetary value such as patents, trademark etc.)
2. Nominal accounts : all this, all accounts which are related to income/gain and expenses/losses are included e.g. Salary paid, Commission received etc.
RULES OF DEBIT/CREDIT UNDER TRADITIONALAPPROACH :
CLASSIFICATION OF ACCOUNTS
RULES OF DR/CR
1.
NATURAL PERSONS
PERSONAL
2.
ARTIFICIAL PERSONS
DR
THE RECEIVER
3.
REPRESENTATIVE
IMPERSONAL
PERSONS
CR
THE GIVER
REAL
1.
TANGIBLE`
DR
WHAT COMES IN
2.
INTANGIBLE
CR
WHAT GOES OUT
NOMINAL
1
EXPENSES/LOSSES
DR
EXP/LOSSES
3.
INCOME/GAINS
CR
INCOME/GAINS
Illustrations 1: Analyse the following transactions by using the “TRADITIONAL APPROACH”
2011
Amount (in Rs.)
Jan 1
Prateek started business with cash
1,00,000
Jan 5
Bought goods for Cash
20,000 Jan 7
Bought goods from Pravesh
10,000 Jan 10
Sold goods for cash
5,000 Jan 12
Sold goods to Vikas
12,000 Jan 15
Paid Salary
5,000 Jan 20
Received Commission
2,000 Solution :
Analysis of Transactions
S. no.
Transaction
Accounts Affected
Nature of Accounts
Changes
Debit (Rs.)
Credit (Rs.)
1.
Commenced business
Cash
Real
Comes in
1,00,000
Capital
Personal
Giver
1,00,000
2.
Purchased goods
Purchases
Nominal
Expenses
20,000
Cash
Real
Goes out
20,000
3.
Bought goods on
Purchases
Nominal
Expenses
10,000
credit
Pravesh
Personal
Giver
10,000
4. Sold goods for cash Cash Real Comes in 5,000 Sales Nominal Income 5,000 5. Sold goods on Credit Vikas Personal Receiver 12,000 Sales Nominal Income 12,000 6. Paid Salary Salary Nominal Expenses 5,000 Cash Real Goes Out 5,000 7. Received Cash Real Comes in 2,000
Commission
Commission
Nominal
Income
2,000
RULES OF DEBIT/CREDIT UNDER MODERN APPROACH :
Assets/Expenss Capital/lLiabilities/Revenue Increase Decrease Increase Decrease Debit Credit Credit Debit
CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari )
Email Id : [email protected]
