Principles or Rules of Debit and Credit - Problems & Solutions

Prb 4

Problem 1

Identity the two elements effected by the following transactions.

Also state which element is to be debited and which element is to be credited based on the principles of debit and credit.

  1. Started business with cash 50, 000 in cash.
  2. Bought goods from A & Co. for 10,000
  3. Bought Goods for Cash 5,000
  4. Bought Goods from B & Co. for cash 6,000
  5. Purchased Goods from C & Co. on credit 8,000
  6. Sold goods worth 8,000 to P
  7. Sold goods for cash 10,000
  8. Sold goods to Q for cash 4,000
  9. Sold goods to R on credit 8,000
  10. Returned goods to A & Co. 2,000
  11. Goods returned from P 1,000
  12. Goods taken by the proprietor for personal use 1,000
  13. Bought furniture 10,000
  14. Purchased machinery for cash 25,000
  15. Bought computer from Intel & Co. 30,000
  16. Cash sales 5,000
  17. Cash purchases 6,000

Solution

  1. Capital a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  2. A & Co. a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  3. Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  4. Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  5. C & Co. a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  6. P a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  7. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  8. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  9. R a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  10. A & Co. a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  11. P a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  12. Drawings a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  13. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
    Furnitue a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  14. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
    Machinery a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  15. Intel & Co. a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
    Computer a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
  16. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  17. Goods a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}

Problem 2

Identity the two elements effected by the following transactions.

Also state which element is to be debited and which element is to be credited based on the principles of debit and credit.

  1. Cash paid into bank 50,000
  2. Paid cash to A & Co. 10,000
  3. Paid to A & Co. by cheque 5,000
  4. Cash received from P 8,000
  5. Cheque received from Q 10,000
  6. Paid to Intel & Co. by cheque 10,000
  7. Withdrew from bank 2,000
  8. Withdrew from bank for office use 3,000
  9. Withdrew from bank for personal use 2,000
  10. Cash taken by proprietor for personal use 1,000
  11. Bought furniture and paid by cheque 5,000

Solution

  1. Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  2. A & Co. a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  3. A & Co. a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  4. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    P a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  5. Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Q a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  6. Intel & Co. a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  7. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  8. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  9. Drawings a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  10. Drawings a/c
    ↓
    Person
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  11. Furniture a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}

Problem 3

Identity the two elements effected by the following transactions.

Also state which element is to be debited and which element is to be credited based on the principles of debit and credit.

  1. Paid wages 4,000
  2. paid rent by cheque 6,000
  3. Paid salary to Mr. X 2,000
  4. Purchased stationery from KJ & Co. and paid by cheque 500
  5. Received interest 5,000
  6. Received commission by cheque 3,000
  7. Rent received from Mr.LM 1,000
  8. Interest received from Mr.TJ by cheque 2,000

Solution

  1. Wages a/c
    ↓
    Expenditure
    ↓
    Nominal a/c
    ↓
    Expense
    ↓
    Debit
    {Debit all expenses and losses}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  2. Rent Paid a/c
    ↓
    Expenditure
    ↓
    Nominal a/c
    ↓
    Expense
    ↓
    Debit
    {Debit all expenses and losses}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  3. Salary a/c
    ↓
    Expenditure
    ↓
    Nominal a/c
    ↓
    Expense
    ↓
    Debit
    {Debit all expenses and losses}
    Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Going out
    ↓
    Credit
    {Credit what goes out}
  4. Stationery a/c
    ↓
    Expenditure
    ↓
    Nominal a/c
    ↓
    Expense
    ↓
    Debit
    {Debit all expenses and losses}
    Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Giving benefit
    ↓
    Credit
    {Credit the benefit giver}
  5. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Interest Received a/c
    ↓
    Income
    ↓
    Nominal a/c
    ↓
    Income
    ↓
    Credit
    {Credit all incomes and gains}
  6. Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Commission Received a/c
    ↓
    Income
    ↓
    Nominal a/c
    ↓
    Income
    ↓
    Credit
    {Credit all incomes and gains}
  7. Cash a/c
    ↓
    Tangible Aspect (Asset)
    ↓
    Real a/c
    ↓
    Coming in
    ↓
    Debit
    {Debit what comes in}
    Rent Received a/c
    ↓
    Income
    ↓
    Nominal a/c
    ↓
    Income
    ↓
    Credit
    {Credit all incomes and gains}
  8. Bank a/c
    ↓
    Organisation
    ↓
    Personal a/c
    ↓
    Taking benefit
    ↓
    Debit
    {Debit the benefit receiver}
    Interest Received a/c
    ↓
    Income
    ↓
    Nominal a/c
    ↓
    Income
    ↓
    Credit
    {Credit all incomes and gains}

To avoid ambiguity regarding what information an account head provides, it is always appropriate to use additional words to specify the nature of information.

Note such usage in case of the following above

  • Rent may indicate either rent received or rent paid
  • Commission may indicate either commission received or commission paid
  • Interest may indicate either interest received or interest paid

Where we do not specify by using a suffix, we assume that account head to represent an expenditure. This is just a convention and not a rule.

  • Stationery, since not specified is treated as an expenditure.
  • Wages, since not specified is treated as an expenditure.
Author : The Edifier
Prb 6