The system record of a transaction in the journal book is called journal entry, the process of passing journal entry is called journalism. The rules are also known as rules of debit and credit.
This note has information about the rules of journalizing.
According to the double entry system, every transaction has a double effect. Therefore, each transaction has at least two aspects. One aspect of the transaction is debited in an account and the other aspect is credited in another account. The rules where a debiting and crediting of the accounts is based on is known as rules of journalizing i.e debit and credit. There are two alternative bases for the rules of debit and credit such as follows:
Rules based on types of account
Rules based on accounting equation
Rules based on Types of Account
Personal Account It is the account of a person. A person can be a natural person or an artificial person like firms, organization and institutions. This rule states that if a person gets benefits then it is debited and if a person gives benefits then it is credited. The rule of journalizing in personal account is as follows:
Debit the receiver Credit the giver
Real Account It is an account of assets that can be a current asset or intangible assets. It is the record of assets of the business. According to this rule, the asset came into the business through its purchase is debited and the asset sold out of the business through its sale is credited. The rule of journalizing in real account is as follow:
Debit what comes in Credit what goes out
Nominal account It is the account of expenses or loss and income or profit. Itonlyexist in the books in the business but it does not exist in real form. So, it has no physical shape. This rule states that if thereisaexpenses in the business then it is debited. And if there is income in the business then it is credited. The rule of journalizing in nominal account is as follows:
Debit, all expenses and losses Credit, all incomes and profits
Rules based on Accounting Equation
A statement of equality between the three basic elements of accounting i.e. assets, capital and liabilities are known as accounting equation. These three basic elements are affected by every transactions. The total of all assets is always equal to the total of capital and liabilities at any point of time. The rules of debiting and crediting an account based on the accounting equation can be summarized in the following table:
Effects of transactions
Debit or Credit
Increase in assets and expenses/ losses
Decrease in assets and expenses/ losses
Increase in capital, liabilities, gains/ incomes
Decrease in capital, liabilities, gains/ incomes
Things to remember
The system record of a transaction in the journal book is called journal entry, the process of passing journal entry is called journalism.
The rules are also known as rules of debit and credit.
Accounting equation is a statement of equality between the three basic elements of accounting. They are assets, capital and liabilities.
It includes every relationship which established among the people.
There can be more than one community in a society. Community smaller than society.
It is a network of social relationships which cannot see or touched.
common interests and common objectives are not necessary for society.