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 “Little difference between
truth and lie,
Truth is a
Debit Card Pay First, Enjoy Later
And
Lie is a
Credit Card Enjoy First, Pay Later.”

-Princess Najmodi

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 Copyright Notice

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Chapter Contents-
Particulars Page No.
-Meaning of Debit & Credit 6
-Golden Rules of Debit & Credit 7-9
-Objective Type Questions & Practical Problems 10-35

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Meaning of Debit & Credit

These two concepts are based on dual aspect principle or the

double entry system of book-keeping which states that every
transaction has two equal effects. And those two effects are DEBIT
& CREDIT. Not recording both
the effects / dual effects in books
of accounts our record will be
incomplete or imbalanced & it
will show a wrong status.
What are these terms debit and
credit?
They are just formal
bookkeeping and accounting
terms that have opposite
meanings. These are like the pillars of accounting on which the
entire accounting is based.
Hence,
A debit is an accounting entry that either increases an asset or
expense account, or decreases a liability or equity account.

A credit is an accounting entry that either increases a liability or

equity account, or decreases an asset or expense account. It
is positioned to the right in an accounting entry.

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Golden Rules of Debit & Credit

1. Personal Account Rule:

Personal account relates to persons with whom a
business keeps dealing. If a person receives anything
from the business, he is called a receiver and his
account is debited in the books of the business.

DEBIT THE RECEIVER

If person gives anything to the business, he is called as a
giver and his account is to be credited in the books of
the business.

CREDIT THE GIVER

Example: Goods worth Rs.1000 sold to Mr Smith from Mr John. In this

transaction, Mr Smith is the receiver of the goods, hence he is the receiver
and his account is to be debited in the books of business. Mr John is the
giver of goods, he is called giver and his account is to be credited in the
books of business.

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2. Real Account
Real account relates to property which may
either come into the business or go out
from the business. If any property or goods
come into the business, account of those
property/goods is to be debited in the
books of the business.

DEBIT WHAT COMES IN

If any property or goods go out from the
business, the account of that property/good
is to be credited in the books of business.

CREDIT WHAT GOES OUT

Example: Machinery sold for cash for Rs.15000

On sale of goods, cash which is an asset to the business comes into the
business, and therefore cash account is to be debited in the books of the
business. On the other side, machinery which is also an asset goes out of the
business on sale and therefore Machinery account is to be credited in the
books of business.

All entries for goods are included in trading account but it is adjusted in
balance sheet when closing stock entry is passed in balance sheet.

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 3. Nominal Account
Nominal account is an account that relates to business expenses, losses,
incomes and gains. If business incurs expense to manage and run business,
account of that expense is to be debited in the books of business. And if in
the case the transaction of sale or purchase of goods or assets, if any loss is
incurred by the business, account of that loss is to be debited in the books or
assets.

DEBIT ALL EXPENSES & LOSSES

On the other hand, when a business earns

income by rendering services or hiring
business assets, an account of that income is
to be credited in the books of business. And
if in the transaction of sale or purchase of
goods or assets, any profit is earned by the
business, then account of that profit is to be
credited in the books of business.

CREDIT ALL INCOMES & GAINS

Example: (1) Paid Rs.50 as a commission to our agent

Here commission which is paid to an agent is a business expense and it is to

be debited in the books of business. (2) Received Rs.100 as interest on our
fixed deposit, here interest which is received is business income and
therefore it is to be credited in the books of business

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 Objective Type Questions

Q.1.Tick on the Appropriate Column following the Rules of

Debit & Credit

Particulars Personal Nominal Real Debit Credit

All Expenses & Losses
What Comes In
The Giver
What Goes Out
All Incomes & Gains
The Receiver

Q.2. Identify the two elements affected by the following transactions.

Also state which element is to be debited and which element is to be
credited based on the principles of debit and credit.
1. Bought goods from A & Co. for 10,000
2. Bought Goods for Cash 5,000
3. Bought Goods from B & Co. for cash 6,000
4. Purchased Goods from C & Co. on credit 8,000
5. Sold goods worth 8,000 to P
6. Sold goods for cash 10,000
7. Sold goods to R on credit 8,000
8. Bought Loose tools 10,000
9. Purchased Plant & Machinery for cash 25,000
10. Sold goods to Q for cash 4,000

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 Answers

Q.1.
Particulars Personal Nominal Real Debit Credit
All Expenses &
Losses
 
What Goes Out
 
The Giver
 
What Comes In
 
All Incomes & Gains
 
The Receiver
 

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Q.2.
(i)
A & Co. a/c Goods a/c
↓ ↓
Organisation Tangible Aspect (Asset)
↓ ↓
Personal a/c Real a/c
↓ ↓
Giving benefit Coming in
↓ ↓
Credit Debit
{Credit the benefit giver} {Debit what comes in}

(ii)
Goods a/c Cash a/c
↓ ↓
Tangible Aspect (Asset) Tangible Aspect (Asset)
↓ ↓
Real a/c Real a/c
↓ ↓
Coming in Going out
↓ ↓
Debit Credit
{Debit what comes in} {Credit what goes out}

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(iii)

Goods a/c Cash a/c

↓
Tangible Aspect (Asset) Tangible Aspect (Asset)
↓ ↓
Real a/c Real a/c
↓ ↓
Coming in Going out
↓ ↓
Debit Credit
{Debit what comes in} {Credit what goes out}

(iv)
C & Co. a/c Goods a/c
↓ ↓
Person Tangible Aspect (Asset)
↓ ↓
Personal a/c Real a/c
↓ ↓
Giving benefit Coming in
↓ ↓
Credit Debit
{Credit the benefit giver} {Debit what comes in}

(v)

P a/c Goods a/c

↓ ↓
Person Tangible Aspect (Asset)
↓ ↓
Personal a/c Real a/c
↓ ↓
Taking benefit Going out
↓ ↓
Debit Credit
{Debit the benefit receiver} {Credit what goes out}
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(vi)

Cash a/c Goods a/c

↓ ↓
Tangible Aspect (Asset) Tangible Aspect (Asset)
↓ ↓
Real a/c Real a/c
↓ ↓
Coming in Going out
↓ ↓
Debit Credit
{Debit what comes in} {Credit what goes out}

(vii)

R a/c Goods a/c

↓ ↓
Person Tangible Aspect (Asset)
↓ ↓
Personal a/c Real a/c
↓ ↓
Taking benefit Going out
↓ ↓
Debit Credit {Credit what goes out}
{Debit the benefit receiver}

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 (viii)

Cash a/c Loose tools a/c

↓ ↓
Tangible Aspect (Asset) Tangible Aspect (Asset)
↓ ↓
Real a/c Real a/c
↓ ↓
Going out Coming in
↓ ↓
Credit {Credit what goes out} Debit {Debit what comes in}

(ix)

Cash a/c Plant & Machinery a/c

↓ ↓
Tangible Aspect (Asset) Tangible Aspect (Asset)
↓ ↓
Real a/c Real a/c
↓ ↓
Going out Coming in
↓ ↓
Credit {Credit what goes out} Debit {Debit what comes in}

(x)

Cash a/c Goods a/c

↓ ↓
Tangible Aspect (Asset) Tangible Aspect (Asset)
Real a/c ↓
↓ Real a/c
Coming in ↓
↓ Going out
Debit {Debit what comes in} ↓
Credit {Credit what goes out
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 Practical Problems

Q.2. Journalize the following transactions

(i) Goods purchased on credit from Madan Lal Rs. 5,000

(ii) Furniture purchased for cash Rs. 10000

(iii) Goods sold on credit to Dev Raj Rs. 1600

(iv) Goods purchased for cash Rs. 4500

(v) Goods sold for cash Rs. 2100

Solution:

(i) a) What comes in business will be debited

Goods have come in business, so its financial value will be debited with
the name of purchase account.

b) Name of person is given from whom we bought the goods on credit,

so 1st rule‟s second part will be applied.

Who is giver, will be credited.

Madan lal is giver, so its account will be credited.

Purchase account debit 5000

Madan Lal account credit 5000

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(ii) a) What comes in business will be debited. In this transaction,
furniture came in business, so we will open furniture account in the
debit side of journal entry.

b) Cash is also asset and we paid for purchasing of furniture. 2nd

rule‟s second part will be applied.

Furniture Account Debit 10,000

Cash Account Credit 10,000

(iii) a) Dev Raj is receiver of goods, so his personal account will be

debited.

b) Goods go out, so, goods or sale account will be credited.

Dev Raj Account Debit 1600

Sale Account Credit 1600

(iv) a) Goods come in, so goods or purchase account will be debited

b) Cash goes out, so cash account will be credited.

Purchase account debit 4500

Cash account credit 4500

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 (v) a) Cash comes in, so cash account will be debited.

b) Goods go out, so goods or sales account will be

credited.

Cash account debit 2100

Sale account credit 2100

Q.3. Journalize the following transactions

Mr Obama has the following transactions in the month of April.

11th April : Purchased goods from Veeru for 20,000

13th April : Purchased Goods for Cash 15,000
14th April : Purchased Goods from Abhiram for cash 9,000
16th April : Bought Goods from Shyam on credit 12,000
17th April : Sold goods worth 15,000 to Tarun
19th April : Sold goods for cash 20,000
20th April : Sold goods to Utsav for cash 6,000
21st April : Sold goods to Pranav on credit 17,000
26th April : Bought Land for 50,000
27th April : Purchased machinery for cash 45,000
28th April : Bought computer from Intel Computers for 25,000
28th April : Cash sales 15,000
29th April : Cash purchases 22,000

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Solution:

Amount Amount
Date Particulars L/F
(Dr) (Cr)
11th Goods/Stock a/c Dr – 20,000
To Veeru a/c – 20,000
[Being the value of stock purchased from Mr
Veeru on credit]
13th Goods/Stock a/c Dr – 15,000
To Cash a/c – 15,000
[Being the value of stock purchased for cash]
14th Goods/Stock a/c Dr – 9,000
To Cash a/c – 9,000
[Being the value of stock purchased for cash
from Mr Abhiram]
16th Goods/Stock a/c Dr – 12,000
To Shyam a/c – 12,000
[Being the value of stock purchased from Mr
Shyam on credit]
17th Tarun a/c Dr – 15,000
To Goods/Stock a/c – 15,000
[Being the value of stock sold on credit to Mr
Tarun vide]
19th Cash a/c Dr – 20,000
To Goods/Stock a/c – 20,000
[Being the value of goods sold for cash]
20th Cash a/c Dr – 6,000
To Goods/Stock a/c – 6,000
[Being the value of stock sold to Mr Utsav for
cash]

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 Amount Amount
Date Particulars L/F
(Dr) (Cr)
21st Pranav a/c Dr – 17,000
To Goods/Stock a/c – 17,000
[Being the value of stock sold to Mr Pranav on
credit]
26th Land a/c Dr – 50,000
To Cash a/c – 50,000
[Being the amount paid for land purchased]
27th Machinery a/c Dr – 45,000
To Cash a/c – 45,000
[Being the amount paid for the purchase of
machinery]
28th Computers a/c Dr – 25,000
To Intel Computers a/c – 25,000
[Being the value of a computer purchased
from M/S Intel Computers on credit]
28th Cash a/c Dr – 15,000
To Goods/Stock a/c – 15,000
[Being the value of stock sold for cash]
29th Goods/Stock a/c Dr – 22,000
To Cash a/c – 22,000
[Being the value of stock purchased for cash]

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Q.4. Journalize the following transactions
Mr Raj has the following transactions in the month of June.

10th June : Commenced business with a capital of 1,00,000

11th June : Purchased goods from Arun for 10,000

13th June : Purchased Goods for Cash 25,000

14th June : Purchased Goods from Dhiraj for cash 9,000

16th June : Bought Goods from Nitin on credit 12,000

17th June : Sold goods worth 25,000 to Puneet

19th June : Sold goods for cash 10,000

20th June : Sold goods to Rishi for cash 6,000

21st June : Sold goods to Kanav on credit 17,000

22nd June : Returned goods to Arun 3,000

23rd June : Goods returned from Puneet 1,000

25th June : Goods taken by the proprietor for personal use 1,000

26th June : Bought Land for 50,000

27th June : Purchased machinery for cash 45,000

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 Solution:

Amount Amount
Date Particulars L/F
(Dr) (Cr)
June Cash a/c Dr – 1,00,000
10th To Capital a/c – 1,00,000
[Being the amount received from Mr Raj in
cash, the proprietor as his capital
contribution]
11th Goods/Stock a/c Dr – 10,000
To Arun a/c – 10,000
[Being the value of stock purchased from Mr
Arun on credit ]
13th Goods/Stock a/c Dr – 25,000
To Cash a/c – 25,000
[Being the value of stock purchased for cash]
14th Goods/Stock a/c Dr – 9,000
To Cash a/c – 9,000
[Being the value of stock purchased for cash
from Mr Dhiraj]
16th Goods/Stock a/c Dr – 12,000
To Nitin a/c – 12,000
[Being the value of stock purchased from Mr
Nitin on credit vide]
17th Puneet a/c Dr – 25,000
To Goods/Stock a/c – 25,000
[Being the value of stock sold on credit to Mr
Puneet]
19th Cash a/c Dr – 10,000
To Goods/Stock a/c – 10,000
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 Amount Amount
Date Particulars L/F
(Dr) (Cr)
[Being the value of goods sold for cash]
20th Cash a/c Dr – 6,000
To Goods/Stock a/c – 6,000
[Being the value of stock sold to Mr Rishi for
cash]
21st Kanav a/c Dr – 17,000
To Goods/Stock a/c – 17,000
[Being the value of stock sold to Mr Kanav on
credit]
22nd Arun a/c Dr – 3,000
To Goods/Stock a/c – 3,000
[Being the value of goods returned to Mr
Arun]
23rd Goods/Stock a/c Dr – 1,000
To Puneet a/c – 1,000
[Being the value of stock returned by Mr
Puneet]
25rd Drawings a/c Dr – 1,000
To Goods/Stock a/c – 1,000
[Being the value of stock taken by the
proprietor]
26th Land a/c Dr – 50,000
To Cash a/c – 50,000
[Being the amount paid for land purchased]
27th Machinery a/c Dr – 45,000
To Cash a/c – 45,000
[Being the amount paid for the purchase of
machinery]
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 Hope you have enjoyed Learning

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