Basic accounting is as simple addition and subtraction that you learnt in Mathematics. While applying addition and subtraction analogy to accounting, debit is equivalent to addition and credit is equivalent to subtraction. Yes, basic accounting principles are based on two important terms “credit” and “debit”. These two terms are two actions of opposite nature used in every transaction performed in any business.
The entire accounting process is based on following three elements:
- Dual Entity Concept
- Type of Accounts
- Debit and Credit Rules/Principles applied to particular account type
Each of the accounting head used in any accounting system of any business are classified under types of accounts. Further, each of the below given account type has a pair of debit/credit rules relevant to it.
Here are three types of accounts and general debit/credit rule applied to that account type:
a) Real Account
Debit what comes in
Credit what goes out
b) Personal Account
Debit to receiver
Credit to giver
c) Nominal Account
Debit all Expenses and Losses
Credit all Income and Profit
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