'Single Rule' for Double Entry Accounting

The Logic of Debit and Credit Entries
An organization’s accounting system can be perceived as made up of a large number of accounts. Any financial transaction related to the organization is an exchange of monetary value between any two or more accounts, value being received by and added to one account and being given by and deducted from some other. Thus, if furniture is purchased for Rs. 5000 in cash, monetary value is being put in to Furniture Account and given by Cash Account. Similarly, if proprietor is giving to the firm a piece of land of the value of Rs. 1 lakh, this value is being put in the Land Account and is given by the proprietor and recorded in the capital Account. If Rs. 5000 are being disturbed in cash as wages to workers, value is being put into the cost of goods manufactured account through Wages Account and given by Cash Account.

The Single Rule of Double Entry System
The Rule of entry into the journal is “debit the account receiving monetary value and credit the account giving monetary value.” Thus, in the first case, Furniture Account will be debited and cash account credited, in the second case, Land Account will be debited Account credited and in the third case Wages Account will be debited and Case Account credited. The entries for these three transactions are given below:
1. Furniture Account Dr. 5,000
To cash Account 5,000
2. Land Account Dr. 1,00,000
To Capital Account 1,00,000
3. Wages Account Dr. 5,000
To cash Account 5,000

In case of a credit sale, cash is not received and the purchaser, in effect, is allowed to keep money with him for the credit period and the balance of Debtors Account thereby increases, i.e., the amount is added to the existing amount of Debtors Account. That’s why; this account is the receiver of monetary value which is received from sales Account. The Debtors Account, therefore, is debited and Sales Account is credited. In the case of credit purchase, the seller leaves the amount with the firm and, therefore, Creditors Account is credited and since this value is being put in purchases, the Purchase Account is debited.
When business earns profit, i.e., revenue received is more than the cost incurred, the difference is net addition to cash/debtors or both and, therefore, one or the other or partly one and partly other Account(s) is/are debited with respective amounts. Since business run for proprietor, this profit belongs to them but is left in the business until and unless withdrawn and therefore, is treated the same way as capital, i.e., credited to Profit and Loss Account or to Retained Earnings Account, which is really a part of Capital Account.

Thus a single rule of double-entry system of Accounting is “Debit the account which receives the monetary value and credit the account from which monetary value is received.”

Combining Three Rules of Double-Entry System into a Single Rule
This combines in itself, the prevailing three rules of double-entry system, viz.,
(i) ‘Debit the receiver and credit the giver’ - Personal Accounts
(ii) ‘Debit what comes in and Credit what goes out’ - Real Accounts
(iii) ‘Debit all expenses & losses and credit all revenues & gains’ - Nominal Accounts
Results of using the single rule will be the same as using the three rules, as shown below:
Transaction/Three Rules/Single Rule
1. Paid cash to Mr. A
* Debit Mr. A’s Account as he is the receiver and credit Cash Account as it goes out
* Monetary value is put in Mr. A’s Account so debit & this value comes from Cash Account so credit Cash Account
2. Bought Furniture for cash
* Furniture comes in so debit Furniture Account and cash goes out so credit Cash Account
* Furniture Account is receiving monetary value so debit it & value is coming out of Cash Account so Cash Account is credited
3. Paid Salary by Cheque
* Salary is an expense so debit Salary Account & payment of cheque reduces bank balance so credit Bank Account
* Value is being put in Salary Account so debit it and value is received from Bank Account so credit it.

Even though the entry will be the same whichever method is used, the single rule is better and easier to use, once the concept of transfer of monetary value is clear. Moreover, rather than remembering three rules, only one rule would be remembered and used. Also there would by no need to remember the three types of account for this purpose.

This single rule is suggesed by Professor O.S.Gupta & CA Pankaj Kothari in their Book Accounting For Managers' published by Frank Bros. & Co. (Publishers) Ltd. New Delhi.

Professor O.S. Gupta
A post graduate in Commerce from University of Allahabad and a graduate of International Teachers’ Programme of Harvard Business School, he taught at University of Allahabad as a Lecturer in Commerce for 16 years (1950-1966) and as Reader in Business Administration for 4 years (1966-1970) before joining South Gujrat University in 1970 as Professor in Business Management and Head of the University Department of Management.
In 1986, he retired from South Gujrat University and joined the centre for Management Development at Modinagar (U.P.) in 1987 and worked there as Professor and Director till and of 1993.
Since 1994, he has been working as a Visiting Professor in Management at Devi Ahilya University of Indore (M.P.).
He has taught P.G. students, Management Accounting for 40 years and also Strategic Management and papers in the functional areas of finance and HRM.
He has been a U.G.C. National Lecturer and also AICTE Visiting Professor of D.A. University, Indore.

CA Pankaj Kothari
Pankaj Kothari is an FCA (Fellow member of The Institute of Chartered Accountants of India), an MBA in HR, Masters in Psychology and currently a Ph.D. scholar at TISS, Mumbai. He has been continuously engaged from last Twenty Two years in training, consultancy, postgraduate teaching and research. He is corporate advisor to many organizations. He has varied experience as Director of a reputed Business School, Head of Finance department, Administrator, Banker and Head of Audit Department.