The Double Entry Method Of Book Keeping And How To Know If It’s A Debit Or A Credit
Debit and credit are the two most basic concepts in accountancy. Today, almost all countries follow the double entry method of book keeping. Under this method, for every account that is debited by a certain amount, another account must be credited by the same amount. Thus, at any given point, the sum total of all debits must be equal to the sum total of credits.
For any given transaction, the account to be debited and which credited is based on certain principles of accountancy.
Broadly, the rule for debit/credit is as follows:
A) For real (or asset) accounts (e.g. furniture, cash, machinery, land, etc.): Debit is what comes in, credit is what goes out.
b) For nominal (or income / expense) accounts (e.g. salary, purchase, sales, etc.): Debit is all expenses and losses, credit is all income and gains. This would include our bank chequing accounts and is why were all so used to knowing debit and credit under these conditions.
c) For personal (or individuals) accounts (E.g. Mr. Johnsons A/C, Forsyth Inc. A/C, etc.): Debit is the receiver, credit the...
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