Debit/Credit Determination Rules

1. As per the American Method Debit/Credit Determination Rules, formulae are below: 

For Assets	i. Increase in Assets. ii. Decrease in Assets.	i. Debit (dr.) ii. Credit (Cr.)
For Liabilities	i. Decrease in Liabilities. ii. Increase in Liabilities.	i. Debit (dr.) ii. Credit (Cr.)
For Capital	i. Decrease in Capital. ii, ncrease in Capital.	i. Debit (dr.) ii. Credit (Cr.)
For Incomes	i. Decrease in Income. ii. Increase in Income.	i. Debit (dr.) ii. Credit (Cr.)
For Expense	i. Increase in Expense. ii. Decrease in Expense.	i. Debit (dr.) ii. Credit (Cr.)
For Stock	i. Increase in Stock. ii. Decrease in Stock.	i. Debit (dr.) ii. Credit (Cr.)

2. Debit/ Credit Determination Rules on as per Account:

(i) Personal Account:
a. Debit the receiver or who owes to business.
b. Credit the giver or to whom business owes.

(ii) Real Account
a. Debit what comes into business.
b. Credit what goes out of business.

(iii) Nominal Account
Debit all expenses or losses.
Credit all income or gains.

Illustration:Determine the debit and credit from the following particulars under Modern Approach.

(a) Started business with capital.

(b) Bought goods for cash.

(c) Sold goods for cash.

(d) Paid salary.

(e) Received Interest on Investment.

(f) Bought goods on credit from Mr. Y

(g) Paid Rent out of Personal cash.

Solution:

	Effect of Transaction	Accounts	To be debited/Credited
(a)	Increase in Cash Increase in Capital	Cash A/c Capital A/c	Debit Credit
(b)	Increase in Stock Decrease in Cash	Purchase A/c Cash A/c	Debit Credit
(c)	Increase in Cash Decrease in Stock	Cash A/c Sale A/c	Debit Credit
(d)	Increase in Expense Decrease in Cash	Salary A/c Cash A/c	Debit Credit
(e)	Increase in Cash Increase in Income	Cash A/c Interest A/c	Debit Credit
(f)	Increase in Stock Increase in Liability	Purchase A/c Y A/c	Debit Credit
(g)	Increase in Expense Increase in Liability	Rent A/c Capital A/c	Debit Credit

Illustration: Ascertain the Debit Credit under British Approach or Double Entry System. Take previous illustration.

	Step-I	Step-II	Step-III		Step-IV
(a)	Cash A/c Capital A/c	Real Personal	Comes in Giver	Debit Credit
(b)	Purchase A/c Cash A/c	Nominal Real	Expenses Goes out	Debit Credit
(c)	Cash A/c Sales A/c	Real Nominal	Comes in Incomes	Debit Credit
(d)	Salary A/c Cash A/c	Nominal Real	Expenses Goes out	Debit Credit
(e)	Cash A/c Interest A/c	Real Nominal	Comes in Incomes	Debit Credit
(f)	Purchase A/c Y’s A/c	Nominal Personal	Expenses Giver	Debit Credit
(g)	Rent A/c Capital A/c	Nominal Personal	Expenses Giver	Debit Credit

Mohammad Shahajahan FCS, CFC, CPFA

Financial Management Specialist

NATP-2 Project,

Ministry of Agriculture