Many learners of the basics of accounting get confused while applying the golden rules for debiting and/or crediting the accounts in the books of accounts.
For e.g.:-
There is a business with the name “B”. There is a person, name ‘Mr.A’ who owes INR 10000/- to the business “B” (means the business has account INR 10000/- receivable from Mr.A). Now there is one more person name ‘Mr. C’ who owes the same amount to Mr.A’.
Mr.A and Mr.C approached business ‘B’. By mutual understanding among the three parties, they agreed that Mr.C will pay to the business ‘B’ on behalf of Mr. A’.
Now, what will be the Entry to be made in the books of the business ‘B’?
HERE IS THE PROBLEM for the new learner to apply the golden rules of Debiting and Crediting the accounts as per Double Entry accounting System:-
Here the business ‘B’ will debit the account of Mr.C’ in its book. (Mr.C’s A/c is a personal type of account)
Rules for personal type of accounts says, “DEBIT THE RECEIVER”.
But in the above case, right now, Mr.C does not seem to be the RECEIVER (from the business).
[2]
A business has been running well for a long time. Owner decided to calculate the Goodwill and show it in the books of accounts.
Now, what will be the Journal Entry to be made in the books of the business
HERE IS THE PROBLEM for the new learner to apply the golden rules of Debiting and Crediting the accounts as per Double Entry accounting System: –
‘Goodwill A/c’ is a Real type of account
Rules for Real type of account says, “DEBIT WHAT COMES IN”.
But in the above case, the ‘goodwill’ does not seem to be coming in the busines
I present the method relates to modified rules to understand the Double Entry Accounting System and/or to remove difficulties in application of prevailing rules.
Modification in the Golden Rules of Debit and Credit.
1] For Personal Type of Accounts.
Debit the Receiver/Receivable
– [here ‘receivable’ means debit the personal type of account from whom the amount (or service, benefit etc.) becomes receivable, although right now not seem to be Receiver]
Credit the Giver/Payable
– [here ‘payable’ means credit the personal type of account to whom the amount (or service, benefit etc.) becomes payable, although right now does not seem to be Giver]
2] For Real Type of Accounts.
Debit What Comes In/Increases
– (here ‘Increases’ means debit the Real type of account, value of which increases in the business, although right now it is not seem to be coming in the business)
Credit What Goes out/Decreases
– (here ‘Decreases’ means credit the Real type account, value of which decreases, although right now it is not seem to be going out from the business)
3] For Nominal Type of accounts :-
(There is NO modification needed to the prevailing Rules of Nominal type of accounts, for better understanding of debit-credit effect to such type of accounts)
DISCLAIMER: –The above modification is authors own views as per the 17 years of experience to teach BASICS OF ACCOUNTING only, there may be different views by different institutions or organizations authorized for the accounting systems.
All Copyright of the above Article is reserved by EJAJ RANGUNWALA (B.COM., M.COM., B.ED, D.B.M.) (+91-9028262838 (whatsapp))
