Question

If the debit credit rules are not followed what can occur:

Please provide example

Answer 1

Solution:

Debit and credits are used in accouting to record transaction. For every transaction minimum two account got impacted. If one account is debited, then another account is credited in such a manner that debit is always equal to credit.

There are some rules regarding which account will be debited and which account will be credited. If rules of debit and credit not followed then it will result in to mirepresenting books of accounts of the company.

For e.g. cash received from debtor for $100

In this case, correct entry is cash is debited as it is a real account and as per rules "Debit what comes in and credit what goes out". Therefore we are receiving cash and same will be debited. On the other hand debtor account will be credited as it is a personal account and as per rules "Debit the receiver and credit the giver". Therefore debtoe is giving cash to company hence his account will be credited.

If we do not follow debit and credit rules and pass the entry by debiting debtor account and crediting cash account, it will represent misleading picture of the company. In such case, cash is decreased in books and available cash is more than cash balance in books. Further debtor balance will be increase instead of decrease.

Therefore we should always follow debit and credit rule otherwise it will result in misleading picture of books of accounts.