What Are The Two Main Or Primary Accounting Rules That Maintain Or Set The Increase And Decrease Of Different Account Balances

What Are The Two Accounting Rules That Regulate Increases And Decreases Of Account Balances?

In fact, there are two accounting rules which describe the increase and decrease of an account balance in a T-Account or Ledger’s Account.

(i) An account balances increases on positive, normal, usual or favorable side of a ledger account

(ii) An account balances decreases on negative, opposite, unusual or unfavorable side of a ledger’s account

There are five types of Accounts i.e., Assets, Expenses, Liabilities, Owner’s Equity or Equity and Revenues.

Asset account balances increase on debit side or left side of asset’s t account but it decreases on credit side or right side of asset’s t account or asset’s ledger account. Assets are permanent account and account balances of assets are transferred to balance sheet.

Expenses account balances increase on debit side or left side of ledger’s account and decrease on the right side of a t-account. However, expenses accounts are closed as these are temporary accounts.

Liabilities account balances are increased on the right side of t-account and decreased on the left or debit side. Liabilities are also permanent accounts and the account balances of liabilities are not closed until these are fully paid off or the business goes into liquidation or the business is shutdown due to heavy losses.

Owner’s Equity or Equity account balances are also increased on right side or credit side of the t-account and decreased on left side or debit side of owner’s ledger account. Owner’s equity or equity account is a Balance Sheet Account and transferred to balance sheet.

Revenue account balances are increased on credit side and decreased on the left side of the t-account. Like expenses, revenues are also temporary accounts and closed to Income Summary Account at the end of the accounting period.