The basic operation of financial accounting within an organization starts from the journalizing of day-to-day transactions. Any business transaction no matter how inconsequential it may seem has to be properly recorded in the Journal.
As, I mentioned in the previous posts regarding classfication of elements, after having identified the respective class of the item, we only have to follow some basic rules. These rules are mentioned hereunder:
For Assets the rule is that if the asset is flowing towards the company (whose accounts we are maintaining), then the Asset account will be debited. And if the asset is disposed off in any way then the Asset account will be credited. These rules are the absolute rules of thumb for accounting. So, remember them always!
As I referred to previously Liability is treated oppositely to Assets. An increase in a Liability i.e. the company's payable increases, then the Liability account will be credited. And in case the liability is reduced by payment then the Liability account will be debited.
Likewise, the incurring of any expense will be debited and the earning of any revenue or income will be credited.
Capital is not absolutely but technically treated as a Liability which the company owes to the Owner of the business. So, the treatment is same as that for liabilities. When capital is introduced into the business then this increase is credited to the Owner's capital because this transaction results in the company owing more to the Owner. And debited when the Owner withdraws something out of the company for personal use.
As, I mentioned in the previous posts regarding classfication of elements, after having identified the respective class of the item, we only have to follow some basic rules. These rules are mentioned hereunder:
For Assets the rule is that if the asset is flowing towards the company (whose accounts we are maintaining), then the Asset account will be debited. And if the asset is disposed off in any way then the Asset account will be credited. These rules are the absolute rules of thumb for accounting. So, remember them always!
As I referred to previously Liability is treated oppositely to Assets. An increase in a Liability i.e. the company's payable increases, then the Liability account will be credited. And in case the liability is reduced by payment then the Liability account will be debited.
Likewise, the incurring of any expense will be debited and the earning of any revenue or income will be credited.
Capital is not absolutely but technically treated as a Liability which the company owes to the Owner of the business. So, the treatment is same as that for liabilities. When capital is introduced into the business then this increase is credited to the Owner's capital because this transaction results in the company owing more to the Owner. And debited when the Owner withdraws something out of the company for personal use.
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