Question -
Answer -
All transactions must be measured in monetary terms for being recorded. All such transactions have a dual aspect i.e. both debit and credit. Therefore when recording transaction both the debit and credit amount should be the same. In recording of transactions debit and credit determines whether it should be placed in left or right side of the account. Amount entered on the left side is debit and is represented by notation Dr. while, credit is recorded on the right side of an account, abbreviated as Cr.
For recording transactions, accounts are classified into following types:
- Assets
- Liabilities
- Capital
- Expenses/Losses
- Revenues/Gains
Following rules are used for recording transaction to an account:
For Assets/ Expenses or Losses: Increase in Assets, Expenses or losses is debited while decrease is credited. For Liabilities/Capital/Revenues or Gains the increase is credited, while decrease is debited.