AccountingCapital Latest Questions

Natalia Alva
  1. 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/c Debit Debit the increase in expenses.
    To Cash A/c Credit Credit 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/c Debit  Debit all expenses and losses (Nominal Account Rule)
    To Cash A/c Credit Credit 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.

    See less
    • 1