PRINCIPLES OF DOUBLE ENTRY BOOK KEEPING.

Transactions: They are the economic events of the enterprise that are recorded. A
transaction is defined as “any business dealings which results in transfer of money or money
are worth”. It is the exchange of goods or services for money or vice versa. Examples –
purchase of goods for cash. sale of goods for cash, payments to creditors The equality of the
basic accounting equation must be preserved e.g. increase in assets has the effect of decrease
in another asset or increase in liabilities or increase in owner equity.

TWO ASPECTS OF TRANSACTIONS: There are two aspects of each transaction,

Receiving aspect and giving aspect. When a transaction takes place something is received in
exchange of which something is given Example: Bought goods for cash. There is addition in
Stock of Goods .It represents receiving aspect and at the same time Cash balance is reduced
which represents giving aspect

Table showing the effect of a transaction on two accounts

Particulars Receiving Aspect Giving Aspect
Bought good for cash Good Account Cash Account
Opening Balance 10000 10000
Effect + 300 - 300
Closing Balance 1300 7000

An Account is the summary of transactions relating to a particular thing.

There are two sides of an account. Debit side and credit side
e.g. Ramesh Account, Cash Account, Salary Account, Bank Account etc.
Book Keeping is an art of recording transactions in a systematic manner.
Double entry Book-keeping is a system in which every transaction is recorded twice.
Once on the debit side of an account which receives the benefit
And again on the credit side of other accounts which gives the benefit.
Thus every debit has got corresponding credit. In a double-entry system, equal debits and credits
are made in the accounts for each transaction.
Thus, the total debits will always equal the total credits and the accounting equation will always
stay in balance.

Rules of Debit and Credit

Account Normal Balance Increase (+) Decrease (-)
Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner’s Equity Credit Credit Debit
Revenue Credit Credit Debit
Expenses Debit Debit Credit

Kinds of Accounts
Accounts Meaning and Nature Example
Personal Accounts Accounts of persons & Institutions Ramesh Account N.S.B.
 College A/c
Real Accounts Accounts of Assets & Properties Cash Accounts Building Account
Nominal Accounts Accounts of Expenses and Incomes Salary Account Rent Account

Rules of Debit & Credit

Account To Debit To Credit
Personal Account Debit the receiver Credit the giver
Real Account Debit what comes in Credit what goes out
Nominal Accounts Dr all Expenses & losses Cr all incomes & Gains

Debit balance – When the total of the debit side of account is more than the total of the credit
side, the account shows debit balance.

Credit balance – When the total of the credit side of is more than the debit side, the account
shows

Closing balance – Balance drawn at the end of the given period is called closing balance. It is
always shown on the opposite side of account and two sides total are equated e.g. when account
shows a debit balance it is shown on credit side and vice-versa.

Opening balance – Balance brought down at the beginning of period is called opening of
balance.

It is always shown on the right side. E.g. – when an account shows debit balance it is shown on
the debit side at commencement of the next period.

Table Showing procedure Opening and Closing Balance

Balance Debit Balance Credit Balance
Opening Balance To Balance b/d on the debit side By balance b/d on Credit
side
Closing Balance By balance C/D on the credit side To balance C/D on Debit side