Sushil Mundada

•DEBIT: Account has received a benefit

•CREDIT: Account has parted with the benefit
•DEBTOR: Person from whom we have to recover money
•CREDITOR: Person to whom we have to pay money
•CAPITAL: Amount excess of assets over liabilities
•ASSET: Anything convertible to cash or equivalent
•LIABILITIES: Debts for which trader is responsible for
payment
•INVOICE: Business document sent by seller of goods to
purchaser of goods
•Assets
-Fixed : Land, Building, Office equipment, etc
-Current : Cash in Hand, Cash at Bank, Debtors, etc
•Liabilities
-Fixed : Loans, Debentures, Capital, etc
-Current : Creditors, Bills payable, etc
•Method assumes that every transaction has two-fold effect
and in each transaction there are two parties or accounts
•One account receives benefit and other account gives
benefit
•Account receiving the benefit is debited and other account
parting with benefit is credited
•Double entry book keeping system is defined as system of
recording two fold effect of each and every transaction in
proper set of books
 CLASSIFICATION OF ACCOUNTS

Personal A/c Impersonal A/c

Real A/c Nominal A/c

•Personal A/c are those of individuals, firm or company
e.g. Capital A/c, Drawings A/c, Bajaj Co. A/c, etc
•Real A/c record transactions relating to property and material
things
e.g. Cash A/c, Goods A/c, Furniture A/c, etc
•Nominal A/c record transactions relating to expenses, losses,
income and gains
e.g. Rent A/c, Salary A/c, Commission A/c,
Interest A/c, etc
1)Personal A/c : Debit the receiver,
Credit the giver
2)Real A/c : Debit what comes in,
Credit what goes out
3)Nominal A/c : Debit the expenses and losses,
Credit the income and gains
e.g. 1) Paid to Rohit for salary Rs.1000
2) Withdraw from bank for personal use Rs.2000
No. A/c Affected Type DB/CR Reason
1 Salary Nominal DB Salary is expense
Cash Real CR Cash going out
2 Drawings Personal DB Received benefit
Cash Real CR Cash going out
- Maintains original and detailed record of transactions
- Original record which provides base for subsequent accounting
work
JOURNAL ENTRY
Transaction- Sold goods for cash Rs.1000

Date Particulars L.F Debit Credit

1 Cash A/c. --------Dr. Rs. 1000
To Goods A/c Rs. 1000
(Being Cash sales)
- Principle book of account in which all transactions are finally
posted from journal in summarised and classified manner
- Can prepare financial statements like profit & loss A/c,
Balance-sheet, etc with help of ledger
- Posting is act of transferring entries from journal to ledger
- Processing of finding out difference between total of debit side
and credit side of an account
• General Ledger: Maintains all impersonal i.e. real and
nominal accounts
• Sales Ledger: Maintains accounts of debitors to whom goods
are sold on credit basis
• Purchase Ledger: Maintains accounts of creditors from whom
goods are purchased on credit basis
• Private Ledger: Maintains personal account i.e. Capital A/c,
Drawings A/c, P & L A/c, Balance-sheet, etc
- Essential for preparing P & L A/c and Balance-sheet
1)Personal A/c: Closed by carrying over balance to the next period

Show balance of debtors and creditors

2)Real A/c: Closed by carrying over balance to the next period
Show balance of asset and property
3)Nominal A/c: Closed by transferring difference to P & L A/c
 Example Journal
Date Particulars Debit(Rs.) Credit(Rs.)
3/1 Cash A/c -------------------------Dr. 7500
To Capital A/c 7500
3/8 Bike parts A/c ----------------------Dr. 2500
To Accounts payable 2500
3/15 Expenses A/c -----------------------Dr. 1000
To Cash 1000
3/17 Cash A/c ---------------------------Dr. 400
Accounts Receivable A/c -----------Dr. 700
To Revenue 1100
3/18 Expenses A/c -------------------------Dr. 275
To Bike parts 275
3/25 Cash A/c -------------------------Dr. 425
To Accounts receivable 425

3/28 Accounts payable A/c --------------Dr. 500

To Cash 500
 LEDGER ACCOUNT
Cash Account

Dr. Cr.
Date Particulars Rs. Date Particulars Rs.
Mar Mar
1 To Capital A/c 7500 15 By Expenses A/c 1000
17 To Revenue A/c 400 28 By Accounts
25 To Accounts payable A/c 500
receivable A/c 425 31 By Balance c/d 6825
8325 8325
•The total of the accounts on the debit and credit side is referred to as the trial
balance.
•If the debits do not equal the credits, then an error has occurred somewhere in
the process
•If the trial balance is not in balance, then an error has been made somewhere in
the accounting process.
•Common errors that would result in an unbalanced trial balance
•Summation error for the debits and credits of the trial balance
•Error transferring the ledger account balances to the trial balance
columns
•Error in the calculation of a ledger account balance
•Error in posting a journal entry to the ledger
•Error in the journal entry
Account Title Debits Credits

Cash 6825

Accounts Receivable 275

Bike Parts 2225

Accounts Payable 2000

Capital 7500

Revenue 1100

Expenses 1275

10600 10600
•Cash Book: Records all cash transactions i.e. cash receipts and
cash payments
•Pass Book (Bank’s Ledger): Account maintained by bank for
each customer in which deposits and withdrawals
are recorded
•Bank Reconciliation Statement:
Prepared to reconcile difference between Cash Book Balance
and Pass Book Balance on particular date
 Trading Profit & Loss Balance-sheet
•Trading A/c: -Gives gross profit or loss earned by business
-Gross profit or loss is transferred to P & L A/c

•Profit & Loss A/c:- Gives net profit or loss earned by business
at end of year
- Shows all indirect expenses and incomes
- The period a Profit and Loss
Statement covers is called the accounting
period.
If Credit side > Debit side => Profit
If Debit side > Credit side => Loss
•Balance Sheet: Shows financial position of business i.e.
position of assets, liabilities and capital on
particular day
Left side shows liabilities and capital
Right side shows assets
After net profit (or loss) is added to (or subtracted form)
capital account, total of both sides of Balance-sheet should be
same i.e.
Assets = Capital + Liabilities
Dr. Cr.
Particulars Rs. Particulars Rs.
To Salaries 3900 By Gross Profit transferred from Trading A/c 17000
To Advertising 500 By Discount received 400
To Travelling expenses 1100 By Interest received 500
To Printing & Stationary 400 By Rent received 1000
To Office Expenses 200
To Discount Allowed 300
To Net Profit transferred to
Capital A/c 12500
18900 18900
 as on 31-3-93
Liabilities Rs. Assets Rs.
Current Liabilities Current Assets
Outstanding Expenses Cash in Hand
Income received in advance Cash at Bank
Creditors Outstanding Income
Bills payable Closing Stock
Bank Overdraft Debtors
Bills Receivable
Long Term Liabilities Investments
Loans
Capital Fixed Assets
Add: Interest on capital Furniture
Add: Net profit Plant & Machinery
Less: Drawings Land & property
Less: Interest on drawings Goodwill