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John Hay
In:
crcreditdebitdr
  1. Aastha
    This answer was edited.

    Why is Debit written as Dr? They say Debit is denoted by "Dr" but if you see the word "Debit"  you will realise that there is no "R" in it then from where is it derived or what does it signify? This is a question which normally every person studying accountancy or is responsible for bookkeeping hasRead more

    Why is Debit written as Dr?

    They say Debit is denoted by “Dr” but if you see the word “Debit”  you will realise that there is no “R” in it then from where is it derived or what does it signify?

    This is a question which normally every person studying accountancy or is responsible for bookkeeping has but one does not get a satisfying answer to the same. There is no exact reason as to why this abbreviation is used but based on the research and records available three answers seemed logical.

    These are –

    1. Dr stems from the word Debtor.
    2. Dr refers to Debit Record but there are no traces of this theory back in the history.
    3. Some say that it’s derived from the Latin word debere and it also has an r in the word but there is no specific record to prove this theory as well.

     

    My personal opinion out of all of the above is that 1st theory is somewhat acceptable.

    Why is Credit Written as Cr?

    In the word “Debit”,  there were no traces of the letter “R” but that’s not the case for credit and the word credit has a letter “R”. But since debit has no “r” we can not consider this theory acceptable. As these abbreviations are used in a pair also they are derived in a pair.

    There are no specific records to justify the same but based on available information the below-mentioned statements seems logical.

    These Are-

    1. Cr stems from a word Creditor.
    2. Cr refers to Credit Record but there are no traces of this theory back in history.
    3. Some say that it’s derived from the Latin word credere and it seems acceptable as both debere and credere contains the letter “r”.

     

    But the most accepted theory is that Cr stems from the word Creditor.

    Conclusion

    I believe there is no perfect answer to this question as there are no records available referring to which one can give an exact reason. But according to me, it’s an abbreviation derived from the words Debtor and Creditor.

     

    Aastha

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Natalia Alva
In:
creditdebitliability
  1. Vaishnavi
    This answer was edited.

    The answer to the question asked is “Liability is credited”. Now, let me help you determine the reason behind why and how is liability credited & not debited. Why and How is Liability credited? Amount payable by a business entity to others is referred to as liability. Liabilities such as creditoRead more

    The answer to the question asked is “Liability is credited”.

    Now, let me help you determine the reason behind why and how is liability credited & not debited.

    Why and How is Liability credited?

    Amount payable by a business entity to others is referred to as liability. Liabilities such as creditors, outstanding expenses, income received in advance, loan taken, etc are classified as personal accounts. So, it is important for us to know both the golden rules for personal accounts and modern rules for the treatment of liability.

    1. Golden rules

    First, we will interpret why liability is credited correlating it with the golden rules with the help of an example.

    Golden rules of accounting states-

    Debit the receiver, Credit the giver

    Example

    Lenovo Inc. acquired computer spares from its supplier XYZ Inc. for 5,00,000. The amount is still payable by Lenovo Inc. (ie.liability). As XYZ Inc. is the supplier of computer spares (ie. the giver of products & services), it is to be credited as per the golden rules.

    Journalizing this transaction in the books of Lenovo Inc. will be-

    Purchase A/cDebit5,00,000Expense A/cDebit all expenses and losses
     To XYZ Inc. A/cCredit 5,00,000Personal A/cCredit the giver

    The above journal entry shows that XYZ has been credited because he is the supplier and also a liability for Lenovo Inc.

    2. Modern rules

    Now, we will determine the reason why liability is credited correlating it with the modern rules along with an example.

    Modern rules of accounting states-

    Credit the increase in liability

    Example

    During the accounting period Jan-Dec 20×2, Mr. Alex has already paid rent 10000 each month for 10 months. But he could not pay the rent for 2 months until the end of the period. So, rent 20000 is still payable (ie. liability) by Mr. Alex.

    The journal entry for outstanding rent will be as follows-

    Rent A/cDebit20,000Debit the increase in expense
     To Outstanding Rent A/cCredit 20,000Credit the increase in liability

    The above entry shows an increase in liability of Mr. Alex as the amount of rent 20000 is payable by him.

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Natalia Alva
In:
creditdebitexpense
  1. Aastha
    This answer was edited.

    Before I answer this question I think it is necessary at your end to understand the modern rule of accounting related to the Expenses. It says - when there is an increase in an expense you will have to debit it and when there is a reduction in an expense you will have to credit it. Now, moving ontoRead more

    Before I answer this question I think it is necessary at your end to understand the modern rule of accounting related to the Expenses.

    It says – when there is an increase in an expense you will have to debit it and when there is a reduction in an expense you will have to credit it.

    Now, moving onto the question put up by you “Expense is a debit or a credit?”

    Applying the above mentioned modern rule of accounting I believe the answer to your question is that it’s a Debit. As mentioned earlier as per the modern rule of accounting an increase in an expense is Debited.

     For Example,

    You run a business of manufacturing food products and to produce the food product you need various inputs like raw materials, labour, electricity and fuel etc. now at every month end, you will have to pay electricity charges based on the units of power consumed by you. So, the electricity charges that you pay is nothing but an expense for your business.

    The accounting treatment of the same shall be:

    Electricity Charges A/cDebitDebit the increase in expenses.
    To Cash A/cCreditCredit the decrease in an asset.

    The above answer can also be justified using the Golden Rule of Accounting for nominal accounts –

    Before moving ahead and applying the golden rule we will have a quick run on the concept of nominal account.

    A nominal account is nothing but what you call profit and loss or an income statement account. At the beginning of every accounting period, the balance of such account is always Zero which is not the case in case of personal and real accounts

    The Golden rule of accounting says –

    “Debit all expenses and losses and credit all incomes and gains “.

    The accounting entry by applying the golden rule for the same example taken above shall be:

    Electricity Charges A/cDebit Debit all expenses and losses (Nominal Account Rule)
    To Cash A/cCreditCredit what goes out (Real Account Rule)

    Hence, since electricity charges are expenses for the entity so we debit it applying the rule of a nominal account.

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Gorika Mehta
In:
creditdebitincome
  1. Vaishnavi

    Is Income debit or credit? Income is credited. Now, let me help you understand why and how is income credited & not debited. Why and How is Income credited? The account of expenses, losses, incomes, and gains are called as Nominal accounts. So, to ascertain the treatment of income, we need to knRead more

    Is Income debit or credit?

    Income is credited.

    Now, let me help you understand why and how is income credited & not debited.

    Why and How is Income credited?

    The account of expenses, losses, incomes, and gains are called as Nominal accounts. So, to ascertain the treatment of income, we need to know both the Golden rules and Modern rules of accounting for nominal accounts.

    1. Golden rules

    First, we will interpret why income is credited correlating it with the golden rules of nominal account along with an example. Golden rules state-

    Debit all Expenses and Losses & Credit all Incomes and Gains

    This is the reason why income is always to be credited.

    Example

    Professional fees charged by Deloitte Inc. for executing an audit of Pepsico Inc. 10,00,000.

    The journal entry for this transaction in the books of Deloitte Inc. will be-

    Pepsico Inc. A/cDebit10,00,000Personal A/cDebit the receiver of service
     To Professional fees A/cCredit 10,00,000Nominal A/cCredit all incomes and gains

    The above journal entry shows that professional fees is the income for Deloitte Inc. Therefore, it has been credited.

    2. Modern rules

    Now, we will ascertain the reason why income is credited correlating it with the modern rules with the help of an example.

    Modern rules of accounting states-

    Credit the increase in Income

    Example

    Mr. Charles received rent 60,000 in cash from its tenant.

    The journal entry for this transaction in the books of Mr.Charles will be-

    Cash A/cDebit60,000Debit the increase in asset
     To Rent received A/cCredit 60,000Credit the increase in income

    The above entry shows an increase in the income of Mr. Charles by receiving rent from its tenant.

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