 Hello everyone, I welcome you to this third part of the same unit, Unit 4, Accounting Process 1, of Become First Semester Financial Accounting. In this particular session, we will discuss the rules of debit and credit. So we know that we record the transactions under the double entry system of bookkeeping. Under this system, we have discussed that each transaction has two aspects. One aspect is known as debit and the other aspect is known as credit. Now we have different rules that will apply in recording the transactions in the books of accounts. We have also discussed the different types of accounts. For example, the personal account, the real account, the nominal account. We have discussed all these accounts and now we will discuss the rules that will follow in recording the transactions in personal account, in real account or in nominal account according to the nature of the business. So first of all, this is personal account. So each account will have two aspects. One is debit and the other is credit. So if we are recording the transactions in personal account, the rule is that for debit, the receiver will be debited, means the account. Or for a better understanding, suppose Mr. X receives something, so he is the receiver, so his accounts will be debited. If Mr. Y gives something, then he is the giver, then his accounts will be recorded on the credit side. So rule is debit, the receiver and credit, the giver. So if we find in a particular transaction that there is a personal account, then we will see whether he receives something or whether he gives something. If the particular personal account or that particular person, it may be national person or artificial person, then his accounts will be debited, if he receives something or his accounts will be credited if he gives something. So we can take the example that suppose purchase goods for Rs. 10,000 on credit from Mr. Ram. Means we have purchased some goods for an amount of Rs. 10,000 on credit from Mr. Ram. So this is a particular transaction we have to record it. Now whether in this particular transaction there is personal account? Yes, definitely there is personal account that is Mr. Ram. Now in our books of accounts we have to see whether Mr. Ram is the receiver or is the giver. In this case we have purchased goods for an amount of Rs. 10,000. But we have not paid Rs. 10,000 right now because this is a credit transaction. Means we will pay Rs. 10,000 to Mr. Ram at a future period of time. Suppose after 2 months. So in this case Mr. Ram is the giver of the benefit. So we will record Mr. Ram's account on the credit side as he is the giver and we will follow the rule of personal account. Credit the giver. So this is all about personal account. Now let us move to real account. Real account generally indicates the assets of the business. Means the properties of the business. So for real account the rule is debit what comes in and credit what goes out. So for example let us take the example of furniture purchased for Rs. 5,000. Means we have purchased some furniture and for that we have paid Rs. 5,000. So we have to find out how to record the real account from this transaction. So real account indicates the properties. In this particular example that is the furniture purchased for Rs. 5,000. We have furniture and cash both are real account. Because furniture is also asset for the business and cash is also an asset for the business. So furniture when we have purchased it comes into our business. So it is in what comes in that will be recorded on the debit side of furniture account. Against this purchase we have paid Rs. 5,000. Rs. 5,000 is also an asset when we have paid it means it goes out from our business. So that amount the cash account will be credited. Means this particular real account this asset of the business has gone out from our business. So what goes out will be recorded on the credit side and what comes in will be recorded on the debit side. So this is the rule for real account. Let us now see the rule for nominal account. Again we classify the nominal account into debit and credit. There is some expenses and losses it will be debited. If there are some incomes and gains of the business then it will be credited. So example salary paid Rs. 5,000. This is a transaction we have to record it in our books of accounts by following the principle of double entry system of bookkeeping. And in this particular transaction we have to find out what type of account is involved. There is no personal account, there is no real account but there is nominal account. Means some expenses have been incurred by the business in the form of salary. Salary has been paid so this is an expense of the business. So this expense amount Rs. 5,000 in the form of salary will be recorded on the debit side. So it is nominal account, it is expense, it will be recorded on the debit side of the account. In this particular transaction there is another account that is the cash. Cash as we have discussed it is real account as it indicates the asset of the business. So the cash account will be recorded by following the rule of real account. Means cash goes out as we have paid salary, cash we have paid so cash will go out from our business. So that will be recorded by following the rule of real account and it will be credited. Real account what comes in and what goes out. So cash goes out it will be credited. Now if we follow the modern approach that is the American approach then these are the types of accounts. Assets, liabilities, capital, revenue, expenses, drains accounts. So when this account will be debited and when this account will be credited. So assets account will be debited when there is an increase. So there is one particular table if we purchased another table the asset for the business it increases. So that account will be debited because it increased. So if we pay cash the asset account will decrease so it will be credited. Liabilities, if there is decrease in the liability then we will debit it. Means if we pay bank loan to some amount. So if we pay bank loan by certain amount it will reduce by that amount. So in that case the bank loan account will be debited because there is a decrease in liability. Alternatively if we take a loan again then there is an increase in liability so it will be credited. Capital account the amount invested in the business generally known as capital. So it will be debited if there is a decrease and it will be credited if there is an increase. If we again invest money in the business in the form of capital. Revenue accounts it will be debited if there is a decrease and it will be credited if there is an increase. Expense accounts it will be debited if there is an increase and it will be credited if there is some decrease. Drawing account means the goods that we withdraw from the business or the money that we withdraw from the business for our personal use that is known as drawings. So it will be debited if there is an increase and it will be credited if the drawing account is reduced by some amount. So this is the classification of accounts, there are different accounts and accordingly there are different rules, personal account, nominal account, real account. This is the according to English approach, according to American approach we have different accounts like assets, liabilities, revenue expenses. So these are the different rules and we will follow these rules when we will record the transactions in journal book or in leisure book. Thank you very much for watching this. Thank you.