Credit and Debit Rules in Tally Prime
What is Debit and Credit
- In Tally and accounting in general, the terms "debit" and "credit" are fundamental concepts that describe the two sides of a financial transaction.
- They are used to record increases or decreases in different types of accounts.
Debit Rule:
- Debit is the left side of an account.
- Debit entries increase assets and expenses.
- Debit decreases liabilities, equity, and income.
Credit Rule:
- Credit is the right side of an account.
- Credit entries increase liabilities, equity, and income.
- Credit decreases assets and expenses.
Asset Accounts:
- Debit increases the account (e.g., cash received).
- Credit decreases the account (e.g., cash paid out).
Liability Accounts:
- Credit increases the account (e.g., loan taken).
- Debit decreases the account (e.g., loan payment).
Equity Accounts:
- Credit increases the account (e.g., owner's investment).
- Debit decreases the account (e.g., owner's withdrawal).
Income (Revenue) Accounts:
- Credit increases the account (e.g., sales revenue).
- Debit decreases the account (e.g., returns on sales).
Expense Accounts:
- Debit increases the account (e.g., utility bill payment).
- Credit decreases the account (e.g., refunds on expenses).
Expense Accounts:
For example, if you receive cash for sales, you would:
- Debit the "Cash Account" (increasing the asset)
- Credit the "Sales Account" (increasing the income)
If you pay for an expense like rent:
- Debit the "Rent Expense Account" (increasing the expense)
- Credit the "Cash Account" (decreasing the asset)
Golden Rules of Accounting
The "Golden Rules" are a set of principles that guide how different types of accounts are affected by transactions. These rules help maintain the balance between the two sides of the accounting equation.
Golden Rules of Accounting
- Personal Accounts: Debit the receiver, credit the giver.
- Real Accounts: Debit what comes in, credit what goes out.
- Nominal Accounts: Debit all expenses and losses, credit all incomes and gains.
- These Golden Rules help maintain the balance between the debit and credit sides of the accounting equation (Assets = Liabilities + Equity) for every transaction.
Accounting Equation Formula and Calculation
Accounting Equation Calculation
Tally Prime
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