Application of rules of double entry system

Application of rules of double entry system

Rules of double entry system of book-keeping are applied for business transactions as follows:

i. Personal account

‘Debit the receiver and Credit the giver’. In case of personal accounts, the rule is debit the account of the person who receives the benefit and credit the account of the person who gives the benefit.

Example     : Paid Anbu Rs. 10,000 by cheque

Accounts affected : Anbu account and Bank account

Nature of accounts         : Both are personal accounts in nature

Rule            :  Debit the receiver and credit the giver

Applying the rule : Anbu is the receiver and the Bank is the giver

Debit           : Anbu account

Credit                   : Bank account

ii.  Real account

‘Debit what comes in and Credit what goes out’. In case of real accounts, the rule is debit what comes in and credit what goes out.

Example     :         Furniture purchased for cash Rs. 5,000

Accounts affected :         Furniture account and Cash account

Nature of accounts         :         Both are real accounts in nature

Rule  :         Debit what comes in and credit what goes out

Applying the rule :         Furniture comes in and cash goes out

Debit           : Furniture account

Credit         :         Cash account

iii .Nominal account

‘Debit all expenses and losses and Credit all incomes and gains’. For nominal accounts, the rule is debit all expenses and losses and credit all incomes and gains.

 Example    :         Paid rent of Rs. 5,000 in cash

Accounts affected :         Rent account and cash account

Nature of accounts         :         Rent is a nominal account and cash account is a real account

Rule  :         Debit all the expenses and losses and credit all the incomes and gains

Applying the rule :         Rent is an expense and cash goes out

Debit           Rent account

Credit                   Cash account