Decision making for Debiting and Crediting of Account/Account Heads

Steps/Techniques/Rules/Methods/Procedures on Decision making for Debiting and Crediting of Ledger Account/Account Heads in Financial Accounting with example.

Procedure for Debiting and Crediting of Ledger Accounts/Debit and Credit Rules are same all over the world.

These steps/procedures are not different from one country to another country.

One can easily take decision for Debiting and Crediting of Ledger Account/Account Heads by following the below mentioned steps. 

Step - 1

Find out Ledger Accounts involved in the Business transaction.

Step - 2

Find out Types of Account of the Ledger Accounts involved.

Step - 3

Look at the nature or flow of the Ledger Accounts involved by using Debit and Credit Rule/Principles of Accounting/Golden Rules of Accounting

Step - 4

In final step,one has to place the involved Ledger Accounts in their proper column, i.e Debit Column or Credit Column.

Let's discuss,example of Some Business Transactions on Decision making for Debiting and Crediting of Ledger Accounts for better understanding.

At the beginning,we are going to discuss about the Debit and Credit Ledger selection on Capital Investment of a Proprietorship Business.

A transaction occurred on dated 01/04/2020 that

Mr. Sanjay Gupta started a Proprietorship Business with a Capital of ₹10,00,000/- by Cash

Steps and Procedures for Decision making for Debiting and Crediting of Ledger Accounts of the above transaction.

Step - 1 

At first,our work is to search for the Ledger Accounts involved in the above transaction.

As a result two Ledger Accounts are identified.

One is Cash Account,and another is Capital Account.

One can write Capital A/c by mentioning the name of Proprietor,like Mr.Sanjay Gupta's Capital A/c in this transaction.

Mr.Sanjay Gupta's Capital A/c or Proprietor's Capital A/c in place of Capital Account as per his/her personal decision can be used.

Finally,we like to write the two Ledger Accounts mentioned below.

Capital Investment - Ledger Account 
Step - 2

In second step, we have to find out the Type of Ledger Accounts involved by using either one of the Accounting Approach.

The above two Ledger Accounts are related to type

Real Account(Cash A/c) and Personal Account(Proprietor's Capital A/c) in Traditional Approach.

Asset Account(Cash A/c) and Capital Account(Proprietor's Capital A/c) in Modern Approach.

Capital Investment by Proprietor 
Step - 3

In third step,we have to look at the nature or flow of the Ledger Accounts involved by using either one of the Accounting Approach.

Cash A/c comes in,to the business and Mr.Sanjay Gupta(Proprietor's Capital A/c) is giver for the business in Traditional Approach.

Cash A/c(Asset Account) increases and Proprietor's Capital A/c(Capital Account) increases in Modern Approach.

Capital Investment - Ledger Account flow
Step - 4 

In fourth and final step,now it is time to place the Ledger Accounts in their respective column, i.e Debit Column or Credit Column by applying the Debit and Credit Rule using either one of the Accounting Approach.

Debit and Credit Rule
As a result,Cash A/c shows a Debit effect for ₹10,00,000/- and 

Proprietor's Capital A/c shows a Credit effect for ₹10,00,000/-

Debit and Credit Ledger Effect in Capital Investment
Location: Mumbai, Maharashtra, India

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