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Basics of Accounting

TYPES OF ACCOUNTS

PERSONAL

NOMINAL

REAL

ALL INDIVIDUALS, GROUPS,AOPS etc.

ALL EXPENSES AND INCOME

ALL ASSETS EXCEPT DEBTORS

Balance C/F To B/S

Balance C/F To P&L

Balance C/F To B/S


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RULES OF DEBIT AND CREDIT

RULES OF DEBIT AND CREDIT

Debit the Receiver


Personal Accounts

Credit the Giver

RULES OF DEBIT AND CREDIT

Debit all loses and expenses

Nominal Account

Credit all profits and revenue

RULES OF DEBIT AND CREDIT

DEBIT TO WHAT COMES IN

Real accounts

CREDIT TO WHAT GOES OUT

Exercise
Account
Capital Rams account Salary account Drawings account Rent account Debtors account General reserve account Investment account Real
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Type
Personal Personal Nominal

Nominal Personal

Wages
Insurance premium Outstanding wages Advance premium Reserves & surplus Charity account Loss by fire account Bank account Cash account Accrued income Preliminary expenses Interest on loan
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Books Of Accounts
A business organization maintains three important books of accounts: Cash Book: to record all the cash payments and receipts including bank transactions. Journal: to record non-cash transactions. Ledger: contains the classified summary of all transactions recorded in the cash book and journal.

Double Entry System

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What Is the Rule of Double-Entry Accounting?

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Conceptual Framework and Financial Accounting


Double Entry System

For cash transactions Cash book Ledger Trial balance

For credit transactions Journal

P&L a/c

B/S
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Journal
In the books of . for the year ending .
Date Particulars a/c To . a/c Dr. LF Amount (Rs) Dr. xxx xxx Amount (Rs) Cr.

( For )

Eg: Mohit started business ,with a name M/s Mohit & bros, of selling toys. The amount invested initially was Rs. 50,000.

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Cntd..

Journal
In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars Dr. LF Amount (Rs) Dr. 50,000 Amount (Rs) Cr.

1/1/05 Cash a/c To Capital a/c

50,000

( For Business started by investing Rs. 50,000 as capital by Mohit)

Two accounts involved here are cash account and capital a/c.
Cash is a real a/c and for business cash is coming in , hence should be debited.
Capital a/c is a personal a/c as it denotes the owner i.e. Mohits a/c. Mohit is the giver and hence should be credited
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Cntd..

On 3 Jan. he purchased furniture for the shop for Rs. 15,000


In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars
Dr.

LF Amount (Rs) Dr.


15,000

Amount (Rs) Cr.


15,000

3/1/05 Furniture a/c To Cash a/c

( For furniture worth Rs.15,000 purchased for the business )

Two accounts involved here are cash account and Furniture a/c.
Cash is a real a/c and for business cash is going out , hence should be credited. Furniture a/c is a real a/c. Furniture is coming in the business , hence should be debited 15 Cntd..

On 5 Jan. he purchased toys for the shop for Rs. 30,000


In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars L F Amount (Rs) Dr. Amount (Rs) Cr.

5/1/0 5

Purchase a/c To Cash a/c

Dr.

30,000
30,000

( For purchase of toys for Rs.30,000 for business purpose )

toys are purchased for the purpose of re-sale, therefore they will be considered as goods. - Two a/cs affected here are Purchase a/c and cash a/c Cash is a real a/c and for business cash is going out , hence should be credited. Purchase a/c is a nominal a/c. and is an expenditure for the business , hence should be debited.
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Cntd..

On 10 Jan. he purchased toys for his nephew for Rs. 500


In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars L F Amount (Rs) Dr. Amount (Rs) Cr.

10/1/05

Drawings a/c To Cash a/c


( For purchase of toys for personal use.)

Dr.

500
500

Toys have been purchased for personal use and not for business use, hence will be categorized as drawings.

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On 15 Jan. he sold toys to Vikas for Rs.1000.


In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars L F Amount (Rs) Dr. Amount (Rs) Cr.

15/1/05

Cash a/c To Sales a/c

Dr.

1000
1000

( For sale of toys for Rs. 1000 )

Here the two a/c s affected are sales a/c and cash a/c. Sales is a nominal a/c . All revenues should be credited. Cash is a real a/c . Cash is coming in , hence should be debited
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On 16 Jan. he sold toys to Euro kids, a nursery school, for Rs.10,000 on credit.
In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars L F Amount (Rs) Dr. Amount (Rs) Cr.

16/1/05

Euro Kids a/c To Sales a/c

Dr.

10000
10000

( For sale of toys on credit for Rs. 10000 )

Here the two a/c s affected are sales a/c and Debtors a/c.

Debtors i.e. Euro Kids is a personal account , hence should be debited


Sales is a nominal a/c . All revenues should be credited.
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On 20 Jan. received a cheque from Euro kids for Rs. 10,000, it was deposited in bank on 23 Jan.
In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date 20/1/05 Particulars Cash a/c To Euro Kids a/c Dr. L F Amount (Rs) Dr. 10000 10000 Amount (Rs) Cr.

( For cheque for Rs. 10000 received but not deposited in bank) 23/1/05 Bank a/c To Cash a/c Dr. 10000 10000

(for the cheque received previously deposited in bank )

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On 25Jan. Paid Rs. 8,000 towards the rent of the shop to Shyam Sunder
In the books of M/s Mohit & Bros., for the year ending 31 march 2006
Date Particulars L F Amount (Rs) Dr. Amount (Rs) Cr.

25/1/05

Rent a/c To Cash a/c


( For Rent paid)

Dr.

8000
8000

Here the two a/c s affected are Rent a/c and Cash a/c.
Cash is a real a/c and for business cash is going out , hence should be credited. Rent is a nominal a/c and is an expenditure for business , hence should be debited.
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BALANCE SHEET

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