Assetsand
liabilitiesASSETSAssetsarethepropertiesandpossessionsofthebusinesstopayinfuture.Can
beamount
payableformaterialpurchased,expensesetc.Propertiesandpossessionscanbeoftwotypes,onethathavephysicalexistence(called
tangible)andtheotherthathaveno
physicalexistence(calledintangible)
LIABILITIESLiabilitiesarethedebtsandobligationsof
thebusiness.
Liabilityis theobligationof
thebusinesstoprovideabenefitorasseton
afuturedate.Assetisarighttoreceiveandliabilityisanobligationtopay,therefore,theseareopposite
toeach other.
INCOMEIncome/Revenueisthevalueofgoodsorservicesthatabusinesschargesfromitscustomers.orThereward/returnreceivedfromtheresourcescommitted
in
thebusinessExpensesExpensesarethecostsincurredtoearntherevenueTheresourcesspentandtheeffortsmadetoearntheincome,whentranslatedinmoneytermsare
theexpensesof thebusinessRulesofDebitand CreditFromourdiscussionup
to
thispoint,wehaveestablishedfollowingrulesforDebitandCredit:Anyaccountthatobtains
abenefitisDebit.ORAnythingthatwillprovidebenefitto
thebusinessisDebit.Boththesestatementsmaylookdifferentbutinfactif
weconsiderthatwheneveranaccountbenefits as aresultof
atransaction,itwillhavetoreturnthatbenefitto
thebusinessthenboththestatementswilllooklikedifferentsidesof
thesamepicture.ForcreditAnyaccountthatprovides
abenefitisCredit.ORAnythingtowhichthebusinesshasa responsibility
toreturnabenefitinfutureisCredit.As explained in
thecaseofDebit,wheneveranaccountprovidesbenefitto
thebusinessthebusinesswillhavea responsibility
toreturnthatbenefitatsometime infutureandso it is
Credit.RulesofDebitandCreditforAssetsSimilarly
wehaveestablishedthatwheneverabusinesstransfersavalue/benefitto
anaccountand
asaresultcreatessomethingthatwillprovidefuturebenefit;the`thing'istermedasAsset.BycombiningboththeseruleswecandevisefollowingrulesofDebitandCreditforAssets:oWhenanassetiscreatedorpurchased,value/benefitistransferredtothataccount,so
it isDebitedi.IncreaseinAssetisDebitoReversingtheabovesituationif
theassetissold,whichistermedasdisposingoff,forsaycash,theassetaccountprovidesbenefitto
thecashaccount.Therefore,
theassetaccountisCreditedii.DecreaseinAssetisCreditRulesofDebitandCreditforLiabilitiesAnythingthattransfersvalueto
thebusiness,andinturncreatesa responsibility onpartof
thebusinesstoreturnabenefit,is aLiability.
Therefore,liabilitiesaretheexactopposite of
theassets.oWhenaliabilityiscreatedthebenefitisprovidedtobusinessbythataccountso
it isCreditediii.IncreaseinLiabilityis
CreditoWhenthebusinessreturnsthebenefitorrepaystheliability,theliabilityaccountbenefitsfromthebusiness.So
it isDebitediv.DecreaseinLiabilityisDebitRulesofDebitand
CreditforExpensesJustlikeassets,wehavetopayforexpenses.Fromassets,wedrawbenefitforalongtimewhereasthebenefitfromexpensesisfora
shortrun.Therefore,ExpenditureisjustlikeAssetbutfora
shortrun.UsingourruleforDebitandCredit, when
wepaycashforanyexpensethatexpenseaccountbenefitsfromcash,therefore,
it isDebited.oNowwecanlaydownourruleforExpenditure:v.Increasein
Expenditure isDebitoReversingtheabovesituation, if
wereturnanyitemthatwehadpurchased,wewillreceivecashinreturn.CashaccountwillreceivebenefitfromthatExpenditureaccount.Therefore,Expenditureaccountwillbecreditedvi.Decreasein
Expenditure
isCreditRulesofDebitandCreditforIncomeIncomeaccountsareexactlyopposite
toexpenseaccountsjustasliabilitiesareopposite
tothatofassets.Therefore,usingthesameprinciplewecandrawourrulesofDebitandCreditforIncomevii.IncreaseinIncomeis
Creditviii.DecreaseinIncomeisDebit
