Question

Describe the rules of credit.

Answer 1

Rules of credit are as follows:

• Personal Accounts: Credit the giver (Example: If Ram pays ₹1000 to Mohan, Ram’s account, the giver, will be credited.)
• Real Accounts: Credit what goes out (Example: If a firm purchases furniture for cash, the Cash account will be credited because cash goes out.)
• Nominal Accounts: Credit all incomes and gains (Example: When the firm receives interest on a bank deposit, the Interest account is credited because it is an income.)