DOUBLE ENTRY SYSTEM AND THE RULES FOR DEBIT AND CREDIT.

Every transaction contains two aspects. Debit aspect and Credit aspect. Recording of
the two aspects at the same time is called Double Entry System of Accounting. This system
of accounting is a scientific and complete system of accounting .

FEATURES OF DOUBLE ENTRY SYSTEM.

1. It maintains a complete record of each transaction.

2. It recognises two-fold aspects of every transaction.
3. In this system one aspect is debited and the other aspect is credited.
4. The total of all debits equals to total of all credits. It helps to establish the
arithmetical accuracy by preparing a statement called Trial Balance.

ADVANTAGES OF THE DOUBLE ENTRY SYSTEM.

1. It is a Scientific System
2. It is the complete record of transactions
3. The arithmetical accuracy of accounts can be found out.
4. To find out the Profit or Loss.
5. To ascertain Financial position of the firm.
6. Full details for the control of the business.
7. Comparative study is possible.
8. Helps the users of accounting data in Decision-making.
9. Frauds and Misappropriations can be located.
10. This method of accounting will be accepted by the Tax Authorities, Banks, Creditors
etc;-

RULES FOR DEBIT AND CREDIT

Under the Double Entry System of Accounting one Aspect or Account is to be debited and other
Aspect or Account is to be credited from every transaction. Debit means to write on the left side of
an account and Credit means to write on the right side of an account. Also there are some rules to
find out the debit account and credit account. To find out the debit and credit there are two types of
Rules namely ‘TRADITIONAL APPROACH AND MODERN APPROACH’.

1. TRADITIONAL APPROACH
This method is also called English Approach. Under this method the Accounts are mainly
classified in to two. That is Personal Account and Impersonal Account.

PERSONAL ACCOUNTS.

This is the account of Persons and the Firms or Institutions. Eg;- Anil, Alpha Company ,State Bank of
India etc:-The Personal account is classified in to three namely Natural Personal Account ,Artificial
personal Account and Representative Personal Account. (Page-1}
 (a) Natural Personal Account .
This account includes the name of the persons . eg:- Ram , Sojan etc:-
(b) Artificial Personal Account.
This account includes the name of the Firms and Institutions. Eg:- Canara Bank, Reliance
Company etc:-
(c) Representative Personal Account.
These are accounts which represent a certain person or group of persons. These are
the accounts of Expenses Payable , Expenses Paid in Advance, Income Receivable
and income Received in Advance. Eg:- Rent Outstanding, Interest Accrued etc:-

IMPERSONAL ACCOUNT.

This account includes all accounts other than the personal account. This account is divided
in to two. i.e. REAL ACCOUNT AND NOMINAL ACCOUNT.

1. REAL ACCOUNT.
It is the account of valuable items such as land and Building , Machinery, Motor Vehicles
etc:-
2. NOMINAL ACCOUNT.
It is the account of Expenses, Loses, Incomes and Gains.eg:- Rent, Salary ,Interest
etc:-

RULES FOR DEBIT AND CREDIT.

1. REAL ACCOUNT :- DEBIT WHAT COMES IN

2. PERSONAL ACCOUNT:-
3. NOMINAL ACCOUNT :-
CREDIT WHAT GOES OUT
DEBIT THE RECEIVER
CREDIT THE GIVER.
DEBIT THE EXPENSES AND LOSSES
CREDIT THE INCOMES AND GAINS.

MODERN APPROACH.

This method is also called American method. Under this method the accounts are
classified in to five categories :-1.Asset Accounts 2. Liability Accounts 3. Capital Accounts
4. Revenue Accounts (Income and Gains Accounts) 5. Expenses and Losses Accounts.

RULES UNDER MODERN METHOD.

TYPES OF ACCOUNT ACCOUNTS TO BE DEBITED ACCOUNTS TO BE CREDITED

1.ASSET ACCOUNTS INCREASE DECREASE
2.LIABILITY ACCOUNTS DECREASE INCREASE
3.CAPITAL ACCOUNTS DECREASE INCREASE
4.REVENUE ACCOUNTS DECREASE INCREASE
5.EXPENSE AND LOSSES A/C INCREASE DECREASE
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