A real account rule example focuses on debiting what comes into the business and crediting what goes out.
Real Account Rules Explained
Real accounts represent assets and liabilities owned by a business. The fundamental rule governing these accounts is straightforward:
Debit what comes into the business. Credit what goes out of the business.
This rule is the backbone of accounting for tangible assets like cash, furniture, and equipment.
Example: Furniture Purchase
Let's illustrate this with an example, as mentioned in the reference:
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Scenario: A business purchases furniture with cash.
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Application of the Rule:
- Furniture is coming into the business; therefore, the Furniture account is debited.
- Cash is going out of the business; therefore, the Cash account is credited.
Here's how it would look in a journal entry:
| Account | Debit | Credit |
|---|---|---|
| Furniture A/c | XXX | |
| Cash A/c | XXX | |
| Explanation: Purchase of furniture for cash |
Key Takeaways
- Real accounts represent assets and liabilities.
- The rule for real accounts ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.
- Applying this rule requires careful identification of what the business is receiving (debit) and what it is giving up (credit).
