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Rules of Journalizing

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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

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  • 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:

S. No.

Effects of transactions

Debit or Credit

1.

Increase in assets and expenses/ losses

Debit

2.

Decrease in assets and expenses/ losses

Credit

3.

Increase in capital, liabilities, gains/ incomes

Credit

4.

Decrease in capital, liabilities, gains/ incomes

Debit



  • 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.
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Very Short Questions

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  • The rule of journalizing in personal account is ______.

    debit the giver, credit the receiver


    debit all expenses and losses, credit all incomes and profits


    debit the receiver, credit the giver


    debit what comes in, credit what goes out


  • ______ is the record of assets of the business.

    Nominal account


    Imperial account


    Real account


    Personal account


  • ______ does not exist in the business in real form. It appears only in the books.

    All the answers are correct


    Nominal account


    Real account


    Personal account


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