Rules of Journalizing

In the double entry book-keeping system, all the transactions are recorded in the dual aspects in which one aspect of the transaction is debited from one account whereas the other aspect is credited on another account involving the equal amount. The task of deciding whether the account heads are to be debited or credited is very important. The systematic record of all financial transactions in the journal book is called journal entry. The process of passing the journal entry in the books of the journal is called journalizing. The rules are also known as rules of debit and credit.

There are two alternative rules of journalizing but the both rules give the same result. The two rules of journalizing are as follows:

• Rules based on the types of account
• Rules based on the accounting equation

Rules of Journalizing based on the Types of Account

Under double entry system, accounts are classified into three types. There are separate rules for debit and credit under these three accounts. These accounts are as follows:

1. Personal account
2. Real account
3. Nominal account

The real account and nominal account are also known as an impersonal account. The rules of journalizing or the rules of debit and credit under personal, real and nominal accounts are as follows:

1. Personal Account:
   A personal account is an account having the name of a person or organization either debit or credit. It has the record of an individual person or an organization. Under the personal account, the person/ organization who is receiving is debited and the person/ organization who is giving is the creditor. The rule of journalizing in the personal account is as follows:
   
   Debit the receiver
   Credit the giver
   
   
2. Real Account:
   Real account is also known as an impersonal account which is actually the account of a thing or property that have physical existence. In business, it is the account of the assets of the business. Under the real account, the asset which is coming in the business is debited and the asset which is going out from business is credited. The rule of journalizing in real account is as follow:
   
   Debit what comes in
   Credit what goes out
   
   
3. Nominal Account:
   The nominal account is also an impersonal account that keeps the record of the expenses, loss, income and gain. It does not have its own physical shape and does not exist in the real form. It is recorded only in the book. It records the account of expenses, losses, income and gains. It is the record of the financial sacrifice which is with the service received and the record of financial benefit that is for the service rendered. The rule of journalizing in nominal account is as follows:
   
   Debit all expenses and losses
   Credit all incomes and profits
   
   

Rules of Journalizing based on the Accounting Equation

The application of double entry system has given birth to the new accounting equation which is also called the balance sheet equation. It states that the sum of the total of assets will always be equal to the sum of the total of liabilities and capital at any given period of time. Mathematically, it is expressed as follows:

Assets= Liabilities + Capital

Every financial transaction brings out an effect on asset, liability and capital. However, the total of assets will still remain equal to the total of liabilities and capital. This special feature of double entry system has developed another rule of journalizing which is based on the accounting equation. The rules can be summarized as follows: