The new accounting system follows the principle of double-entry. Under a double-entry system, every financial transaction of the government office has a double effect. It means each transaction involves at least two accounts.
One aspect of the transition is debited and another aspect is credited. Accounts are debited and credited by the following certain rules. The journal voucher is prepared by following these rules. The rules of debit and credit are as follows:
Rules-based on the Types of Account
Under the double-entry system of bookkeeping, the accounts are classified into three types. Such accounts are personal accounts, real accounts, and nominal accounts. There are separate rules for making debit and credit relating to different accounts, which are as follows:
An account, which is related to the person, office, and organization, is called a personal account. This account is called a personal or office or an organization.
An account, which is related to the asset or property, is called a real account. This account is created when the financial transaction is related to assets or property. Bank account, cash account, furniture account, and machinery and equipment account are some of the examples of real accounts.
The rule of debit and credit under this account is as follows:
Real Account Formula
Debit the receiver
Credit the giver
An account, which is related to income expenses, is called a nominal account. This account is created when a translation is related to income and expense. Salary account, rent account, and allowance account are some of the examples of nominal accounts. The rule of debit and credit under this account is as follows:
Debit all expensesNominal Account Formula
Credit all the incomes
Rule based on accounting equation
The accounting equation is a statement of equality between the three basic elements of financial transactions. These basic elements are assets, Capital, and Liabilities. Each and every financial transaction has a dual effect. However, the total of all assets is always equal to the sum total of capital and liabilities.
The total of all assets is always equal to the sum total of capital and liabilities.Accounting Equation Formula