What Does Rules of Credit and Debit Means in Basic Accounting?

Geometry 2Basic 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:

  1. Dual Entity Concept
  2. Type of Accounts
  3. 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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