Debt and Credit

Debt and Credit are principles of the opposite nature that form the basis of accounting. These principles are the basis and most fundamental of accounting as plus and minus are to mathematics. It would however not be appropriate to apply these rules at all times, as it could not give a sensible meaning. In normal circumstances, we should consider debit as addition and credit as subtraction. It is important to realize that debit and credit are of opposing nature and to use them appropriately is the trick of accounting

An account that is affected by a transaction then it is either credited or debited by the particular amount depending on the nature or type of the account

The three most important accounting rules based on debit and credit are the following

1)      Real account: debit what comes in, credit what goes out

2)      Nominal account: debit all expenses and loses, credit all incomes and revenues

3)      Personal account: debit the receiver, credit the giver

The following are a few examples throwing light to debit and credit of accounting

1)      Considering the following transaction: Bought furniture for credit from Mr. A

The two elements affected here are furniture a/c and Mr. A’s a/c

Furniture here is real account, and according to real account, debit what comes in. hence, the furniture a/c is debited.

2)      Consider the following transaction: Sold goods to Mr. B on credit

The two elements affected are Sales account and Mr. B’s account

Since goods a/c here is a personal account, according to real account, credit what goes out, hence the goods a/c is credited.

Debit and credit vary on different conditions at different instances, it is important to carefully take note of every transaction and analyzing the type of account, it belongs to