GOLDEN RULES AND SIGNIFICANCE OF OF DEBIT AND CREDIT BALANCES

SIGNIFICANCE OF OF DEBIT AND CREDIT BALANCES(GOLDEN RULES)

All accounts fall into three categories

1 Personal accounts

2 Real accounts

3 Nominal accounts

Personal accounts:

if a personal account shows debit balance

the person is a debtor to the business concern

if a personal account shows credit balance

the person is the creditor to the business concern

Real accounts

Real accounts show debit balance. If at any time, there is credit balance in a real account, it represents profit on sale of asset. The profit should be transferred to profit and loss account.

Nominal accounts

if a nominal accounts shows debit balance,it relates to an item of expenditure or loss

if a nominal accounts shows credit balance . it relates to an item of gain or income.