Accounting is the language of the business

Accounts are 2 types For every DEBIT there must be an equal a

1. Personal accounts All the persons & Firms / Companies comes under pe
Accounts which are related to persons & firms are ca

Rule: DEBIT the receiver

CREDIT the giver

2. Impersonal accounts Accounts which are NOT related to persons & firms

A. Real accounts
B. Nominal accounts

What is real accounts?

Accounts which are related to ASSETS of the business are called REAL ACCOU
Rule: DEBIT what comes in
CREDIT what goes out

Debit amounts are indicated with a POSITIVE SIGNAGE

Credit amounts are indicated with a NEGATIVE SIGNAGE

What is NOMINAL accounts?

Accounts which are related to expenses and losses and incomes or gains are called Nominal accounts

Rule: DEBIT all expenses and losses

CREDIT all incomes and gains
 DOUBLE ENTRY ACCOUNTING SY
As per the double entry accounting system, each business transaction contains two aspects.
1. Debit
2. Credit
The receiving aspect is called DEBIT and giving aspect is called CREDIT

Note:- FOR EVERY DEBIT THERE MUST BE AN EQUAL AND CORRESPONDIN

Any payments made in advance in the business is ASSET

ASSET Accounts always show DEBIT balance Whatever is receivable in the business either internally or exter
LIABILITIES Accounts always show CREDIT balance Whatever is PAYABLE in the business either internally or extern
EXPENSES & LOSSES Accounts always show DEBIT balance
INCOMES & GAINS Accounts always show CREDIT balance
PURCHASES Account always show DEBIT balance
SALES Account always show CREDIT balance P
PURCHASE RETURNS always show CREDIT balance PR
SALES RETURNS Account always show DEBIT balance S
CAPITAL Accounts shows CREDIT balance because it is a LIABILITY Sales returns
DRAWINGS Accounts shows DEBIT balance because the value of CAPITAL is going down.

CREDITORS (Liability): The persons / firms to whom money owed by our business
ACCOUNTS PAYABLE CREDITORS ACCOUNTS ALWAYS SHOW CREDIT BALANC
DEBTORS (Asset): The persons / firms WHO OWES SOMETHING to our business
ACCOUNTS RECEIVABDEBTORS ACCOUNTS ALWAYS SHOW DEBIT BALANCE
Any Reserve, Fund, Provision is a LIBILITY and these accounts always show

Journal entries

1. For all payments respective expense account has to be DEBITED and cash account has to be CREDITED

Example: Rent paid, interest paid, commission paid, Discount allowed, Insurance premium paid, Postal charges,

2. For all receipts respective income account has to be CREDITED and cash account
Example: Rent received, interest received commission received, Discount received, sale of scrap etc.

3. Purchased goods for cash for 10000

DEBIT CREDIT
 Purchase A/c Dr Expense 10,000.00
To Cash A/c credit what goes out 10,000.00
(Being goods are purchased for cash)

Note:- Purhchase account has to be debited when GOODS are PURCHASED in the business

3. Purchased goods from Archana for 15000/-

Purchase A/c Dr Expense 15,000.00

To Archana A/c Credit the giver 15,000.00

(Being goods are purchased on credit basis)

4. Purchases for 20000/-

Purchase A/c Dr Expense 20,000.00

To Cash A/c credit what goes out 20,000.00
(Being goods are purchased for cash)

5. Purchased goods for cash from Govind for 10000

Purchase A/c Dr Expense 10,000.00

To Cash A/c credit what goes out 10,000.00
(Being goods are purchased for cash)

6. Cash deposited in the bank

Bank A/c Dr Debit the receiver Bank account is a PERSON

To Cash A/c Credit what goes out
(Being deposited MONEY in bank)

7. Cash WITHDRAWN from bank

Cash A/c Dr Debit what comes in

To Bank A/c Credit the giver Bank account is a PERSON

8. Capital introduced into the business with 30000

Cash A/c Dr Debit what comes in

To Capital A/c It is a liability

9. If cash is withdrawn for personal use- 10000

Debit Drawings A/c To reduce the balance of the capital

Credit Cash A/c Credit what goes out

If goods is withdrawn for personal use

Debit Drawings A/c To reduce the balance of the capital 'Drawings account' is debited
Credit Purchase A/c To reduce the balance of the Purchases, we need to credit the 'Purchase accoun
Note:- For all expenses like interest paid, Commisiion paid, Rent paid, Discount allowed, Salaries
paid, Wages paid, Bank charges paid etc, We need to use Nominal account rule "DEBIT ALL EXPENSES
AND LOSSES" to debit the concerned expense.

Note:- For all incomes like interest received, Commisiion received, Rent received, Discount received
etc, We need to use Nominal account rule "CREDIT ALL INCOMES AND GAINS" to Credit the
concerned income.

Note:- If any assets are purchased in the business or Sold the assets in the business we need to apply the REAL a

If asset is coming into the business apply the rule "DEBIT WHAT COMES IN"
If asset is GOING OUT of the business apply the rule "CREDIT WHAT GOES OUT"

9. Journal entry for Deferred revenue (01 JAN 24 to 31 DEC 24)

(Any income received in advance Deferred
is revenue means INCOME RECEIVED IN A
Example - Subscriptions received (Income) in advance

Journal entry when billing

is done to the customer for
12 MONTHS Posted by ACCOUNTS RECEIVABLE
Debit CUSTOMER DEBIT THE RECEIVER 600
Credit Deferred revenue It is a libaility and it shows credit balance 600

Journal entry when money is paid by cu Posted by ACCOUNTS RECEIVABLE

Debit Transitory Bank
Credit CUSTOMER

Note:- The deferred revenue received by our business has to be recognized as an inc
on a monthly basis. Recognizing income out of deferred revenue on a monthly basis
called as 'AMORTIZATION'
Posted by R2R team
At the end of JANUARY - We need to recognize the revenue

Debit Deferred revenue 50 As liability account is going down, we are crediting the DEFERRE
Credit Revenue 50 Credit all incomes and gains

At the end of FEBRUARY year - We need to recognize the revenue

Debit Deferred revenue 50 As liability account is going down, we are credi

Credit Revenue 50 Credit all incomes and gains

At the end of MARCH year - We need to recognize the revenue

Debit Deferred revenue 50 As liability account is going down, we are credi
Credit Revenue 50 Credit all incomes and gains

Examples for PURCHASE RETURNS Debit Ravi (Debit the receiver)

Credit Purchase returns
1. Goods returned to Ravi
2. Returns to Ravi

Examples for SALES RETURNS Debit Sales returns

Credit Ravi (Credit the giver)
1. Goods returned FROM Ravi
2. Returns from Ravi

Puchased goods from Ravi for 10,000 but paid only 7,000/-
Debit Puchase A/c 10,000.00 Debit all expenses
Credit cash A/c 7,000.00 Credit what goes out
Credit Ravi A/c 3,000.00 CREDITOR -> Liaibility -> CREDIT balance

Note:- When goods are purchased, we need to debit the PURCHASE account

Puchased goods from Ravi for 10,000 and paid 9,900/- and received discount for th
Debit Puchase A/c 10,000.00 Debit all expenses
Credit cash A/c 9,900.00 Credit what goes out
Credit Discount A/c 100 Credit all incomes

Sold goods to Ravi for 10,000 (Assume that it is a CREDIT SALES)

Debit Ravi A/c 10,000.00 (Ravi is the receiver of the goods and moreover he had not paid
Credit Sales A/c 10,000.00 Credit all incomes and gains

Note:- When goods are SOLD, we need to Credit the SALES account
Any expenses paid in advance is ASSET to our business Example, Prepaid rent, Prepaid insuranc

01 JAN 24 Debit Prepayment A/c JAN to JUN 24

01 JAN 24 Credit Cash A/c
The reduction in the
Note:- Assume that you paid rent in advance for 6 months and the amount is 1,20,000/-

Journal to be posted to recognize cost (AMORTIZATION) in the books of accounts for JAN 24

30 JAN 24 Debit Rent To recognize cost as per the nominal account rule 'DEBIT ALL EX
30 JAN 24 Credit PrepaId rent A/c The value of prepayment is going down

Note:- We need to post the above journal entry until 30 JUN 24 so that the prepayment value
NIL by that time.

Any income received in advance is LIABILITY to our business Example, Rent received in advance and

Debit Cash A/c

Credit Received in advance

9. Journal entry for Deferred revenue (01 JAN 24 to 31 DEC 24)

(Any income received in advance is a liability)
Example - Subscriptions received (Income) in advance

Debit Bank Debit what comes in 600 Deferred revenue means INCOM
Credit Deferred revenue It is a libaility and it shows credit balance 600

At the end of JANUARY - We need to recognize the revenue

Debit Deferred revenue 50 As liability account is going down, we are crediting the DEFERRE
Credit Revenue 50 Credit all incomes and gains

At the end of FEBRUARY year - We need to recognize the revenue

Debit Deferred revenue 50 As liability account is going down, we are crediting the DEFERRE
Credit Revenue 50 Credit all incomes and gains

At the end of MARCH year - We need to recognize the revenue

Debit Deferred revenue 50 As liability account is going down, we are crediting the DEFERRE
Credit Revenue 50 Credit all incomes and gains

Note:- If we debit P&L means it is nothing but either expense / loss

Note:- If we credit P&L means it is nothing but either income / gain
To know the PROFIT or LOSS occurred in the business, we prepare FINAL ACCOUNTS at the end of the year
The final accounts are prepared in the business to ascertain PROFIT or LOSS for a particular period at least one year
Also final accounts are prepared to find the FINANCIAL POSITION OF THE BUSINESS for a period of ONE YEAR

The final accounts of a company includes mainly the following items

1. Trading Account (Gross profit / Gross loOpening stock, Purchases, Sales, Wages, Other trading expenses, Carrige inwards
2. P&L Account (OR) Income statement (Net Administrative expenses, Selling and distribution expenses, any other expenses a
3. Balance sheet
4. Cash flow statement
5. Notes to accounts
 DOUBLE ENTRY ACCOUNTING SYSTEM

must be an equal and corresponding CREDIT

mpanies comes under personal accounts

o persons & firms are called personal accounts

Liabilities accounts always show CREDIT BALANCE

ated to persons & firms are called Impersonal accounts

Anything which has economical value is an ASSET

Anything which is RECEIVABLE is an ASSET
Asset accounts always show DEBIT BALANCE
led REAL ACCOUNTS EXAMPLES FOR ASSETS
FIXED ASSETS
Intangible accounts
Goodwill
Patents
DEBIT THE ASSET WITH 10L Copyrights
Credit the asset if no more it exists with 10L Trade marks
Prepayment (Expenses paid in advance)
Debtors
Bills Receivable
Income earned but not received (Accrued income)
Cash in hand
Cash in BANK
Jewellery, Gold, Diamonds
Live stock
Inventory (Closing stock)
Investments
Loan given
ACCOUNTING SYSTEM

ORRESPONDING CREDIT

usiness is ASSET
either internally or externally is called as ASSET
ther internally or externally is called as LIABILITY

Drawings: If owner of the business withdrawn cash or goods for personal use, it is called DRAWINGS.

Debit
Credit
Credit
Debit

y our business
CREDIT BALANCE

our business
EBIT BALANCE

s always show a CREDIT BALANCE

m paid, Postal charges, Stationery, Telephone charges etc.

nd cash account has to be DEBITED

of scrap etc.

Asset Debit If asset balance is increasing

 Asset Debit If asset balance is increasing

Asset Debit
If asset balance is decreasing
Liabilities Credit If LIABILITY balance is
increasing
Liabilities Credit If LIABILITY balance is
decreasing
EXPENSES & If EXPENSE balance is
Debit
LOSSES increasing

INCOMES &
Credit
GAINS If INCOMES & GAINS balance is
increasing

Bank account is a PERSONAL ACCOUNT

Ex:- SBI, UBI, ICICI, HDFC etc
nk account is a PERSONAL ACCOUNT

nk account is a PERSONAL ACCOUNT

t the 'Purchase account'

d to apply the REAL account rule i.e. "DEBIT WHAT COMES IN and CREDIT WHAT GOES OUT".

ME RECEIVED IN ADVANCE which is a LIABILITY

ECEIVABLE team

ECEIVABLE team

ognized as an income
a monthly basis is

e crediting the DEFERRED REVENUE ACCOUNT

Asset account has to be

Asset Debit
If asset balance is increasing DEBITED
If asset balance is Asset account has to be
Asset Debit
decreasing CREDITED
If LIABILITY balance is Liability account has to be
Liabilities Credit
increasing CREDITED
If LIABILITY balance is Liability account has to be
Liabilities Credit
decreasing DEBITED
 If LIABILITY balance is Liability account has to be
Liabilities Credit
decreasing DEBITED
If EXPENSE balance is EXPENSE account has to be
EXPENSES & LOSSES Debit
increasing DEBITED
If INCOMES & GAINS INCOMES & GAINS account
INCOMES & GAINS Credit
balance is increasing has to be CREDITED

bit the receiver)

edit the giver)

PURHCASES
Nominal accounts
SALES

ed discount for the balance amount

oreover he had not paid money after he received goods. So he is a DEBTOR to our business}
d rent, Prepaid insurance & Any other prepaid expenses etc.

e reduction in the value of prepayment is called as AMORTIZATION

count rule 'DEBIT ALL EXPENSES'

prepayment value will be

eceived in advance and any other income received in advance

enue means INCOME RECEIVED IN ADVANCE which is a LIABILITY

e crediting the DEFERRED REVENUE ACCOUNT

e crediting the DEFERRED REVENUE ACCOUNT

e crediting the DEFERRED REVENUE ACCOUNT

EXPENSES
LOSSES
P&L A/c
INCOMES
GAINS
at least one year

penses, Carrige inwards, Purchase returns, Sales returns & Closing stock etc.
es, any other expenses and losses, incomes and gains
economical value is an ASSET
ECEIVABLE is an ASSET
always show DEBIT BALANCE
EXAMPLES FOR LIABILITIES
Creditors
Accounts Payable
Income paid in advance
Bank Overdraft

S
ses paid in advance)

not received (Accrued income)

Anything which is RECEIVABLE is an ASSET

Anything which is PAYABLE is a LIABILITY
alled DRAWINGS.

Asset account has to be

DEBITED
 Asset account has to be
DEBITED
Asset account has to be
CREDITED
Liability account has to be
CREDITED
Liability account has to be
DEBITED
EXPENSE account has to be
DEBITED

INCOMES & GAINS account

has to be CREDITED

LIC
UT".
 LOAN STATEMENT paid FROM TREASUR
AMAZON When a transaction taken pl
A
B same Corporate company, t
C TRANSACTION.
D
E
Entity A INDIA When India entity given loan to UK entity, WHAT IS THE JOURNAL ENTR

1. When loan is given (Permanent)

Debit: INTERCOMPANY RECEIVABLE 100,000.00 ASSET
Credit: P&L 100,000.00 Income

2. When loan amount is received from Entity B on the due date

Debit: Bank 100,000.00 Debit what comes in
Credit: INTERCOMPANY RECEIVABLE 100,000.00 NO MORE ASSET

Cash Deposited in bank

Debit Bank A/c Debit the receiver

Credit Cash A/c Credit what goes out

Cash withdrawn from bank

Debit Cash A/c Debit what comes in

Credit Bank A/c Credit the giver

We follow accrual basis of accounting across all the

Under the accrual basis of accounting, We recognize liability before
the business and then liability will be paid.

Salaries payable (Accrual created)

Debit Salaries GL - 8 Digits

Credit Salaries Payable GL - 8 Digits

When salaries are paid after creating the accrual

Debit Salaries Payable GL - 8 Digits
Credit Bank GL - 8 Digits

Bonus payable (Accrual created)

Debit Bonus
Credit Bonus payable

When bonus is paid after creating the accrual

Debit Bonus payable

Credit Bank

Journal entry for Bank charges

Debit Bank charges

Credit Bank

Journal entry for PREPAYMENTS

Debit Prepayment
Credit Bank

Journal entry for AMORTIZATION

Debit Profit & Loss

Credit Prepayment

Sale of Machinery for 1,00,000/-

Debit: Bank A/c Debit what comes in

Credit: Machinery Credit what goes out

Fixed Assets sold for PROFIT

Debit Bank 60,000.00

Debit Accumulated Depreciation 50,000.00
Credit Asset 100,000.00
Credit P&L 10,000.00
 Fixed Assets sold for LOSS

Debit Bank 30,000.00

Debit P&L 20,000.00
Debit Accumulated Depreciation 50,000.00
Credit Asset 100,000.00

When there is a provision for depreciation created

Journal entry for creating provision for Depreciation

Debit P&L To reduce the revenue

Credit Provision for Depreciation It is a liability

Journal entry for depreciation when provision is created

Debit Provision for Depreciation

Credit Depreciation on Machinery

Journal entry for goodwill write-off

Debit P&L Loss

Credit Goodwill Goodwill value has gone down

Journal entry for BAD DEBTS write-off

Debit P&L Bad debts loss

Credit Debtors The value of Debtors is going down

Journal entry for creating the provision (Posted on PERMANENT BASIS but it will be reversed in

Debit P&L
Credit Provision for bad debts

Journal entry for bad debts When there is a provision for bad debts created

Debit Provision for bad debts Provision for bad debts is created basis on th
Credit Debtors
Current assets
Assets which can be converted into cash within one year.

Examples:

Cash in hand
Cash in bank
Debtors / Accounts Receivable (AR)
B/R
Accrued income / Outstanding income (Income earned but not paid)
Prepaid expenses
Short term investments
Jewellery

Current Liabilities
Liabilities which can be paid within one year.

Examples:

Creditors / Accounts Payable (AP)

Bills payable
Expenses payable / Outstanding expenses
Propsed dividend
Income tax payable
Bank Overdraft
Short term loans (Which can be paid in one year)

Non Current assets

Assets which can be converted into cash more than one year

Example

Long term loan given

Long term investments (Example, Fixed deposits made in the bank on a condition that which cannot be withdrawn within o
 1 R2R Journal entry for audit provision

Debit P&L
Credit Provision for audit fee

2 AP team Journal entry POSTED BY AP team for release of audit provision when in
INCORRECT ENTRY
Debit P&L
Credit Transitory bank account

3 R2R As AP team posted the journal for invoice payment, by hitting to the P&

Debit Provision for audit fee

Credit P&L

Note:- If AP team had posted the correct entry in the books of accounts while making invoice payment, there is no ncess

GOODS Sold to the customer for 10000/- and received 9000/-- towards full and fin

Debit Bank A/c 9,000.00

Debit Bad debts 1,000.00
Credit CUSTOMER 10,000.00

Goods sold to the customers for 100000/-, As we could not recover money from these custom
even after 2 years from the date of sale, Our business sold them to the third party agents and
who had agreed to pay us just 10,000/- (Assume that money is not yet received from the agen

Debit Third party agenets A/c 10,000.00

Debit Bad debts 90,000.00
Credit CUSTOMER 100,000.00

When invoice is issued to the Customer for 12 months - WHAT IS TH

DEBIT Customer (ASSET) This journal is posted by
12 months
CREDIT Deferred revenue Account (Liability) AR team

When money is received from the Customer on the due date

DEBIT AR TRANSITORY BANK (Debit what comes in) This journal is posted by
CREDIT Customer (ASSET) AR team

What is the journal when revenue is recognized on a monthly basi

JAN 25 to DEC 25
DEBIT Deferred revenue Account (Liability) 10,000.00
CREDIT Revenue Account 10,000.00
EMENT paid FROM TREASURY WD 1
ansaction taken place between two or more entities of the
porate company, then it is called INTERCOMPANY
TION.

WHAT IS THE JOURNAL ENTRY? Entity B UK

Oct-23 1. When loan is taken (Permanent)

Debit: P&L 100,000.00 EXPENSE
Credit: INTERCOMPANY PAYABLE 100,000.00 LIABILITY

ue date
Debit: INTERCOMPANY PAYABLE 100,000.00 NO MORE LIABILITY
Credit: BANK 100,000.00 Credit what goes out

Bank A/c is a personal account

Bank A/c is a personal account

cross all the MNCs at global level.

e liability before making any payment in
5 digitVENDOR SUB-LEDGER ACCOUNTS AP
5 digitCUSTOMER SUB-LEDGER ACCOUNTS AR
INVENTORY SUB-LEDGER ACCOUNTS INVENTORY
FIXED ASSETS
REGISTER SUB-LEDGER ACCOUNTS FIXED ASSETS Assets
Liabilities
Expense P&L Expense
Liability Balance sheet Losses
Incomes
Debtors
 Creditors
No more liability Capital
Credit what goes out

Expense
Liability

No more liability after paying the bonus

Credit what goes out

Expense
Credit what goes out

Reduction in the value of intangible assets is called AMO

Asset
Credit what goes out Reduction in the value of fixed assets is called DEPRECIA

Goodwill
You are recognizing the cost (Debit all expenses & losses) Patents
Intangible assets
Asset value is going down Copy rights
Trade marks

EXAMPLE 1
Asset 100,000.00
Less: Accm.dep - 50,000.00
Debit what comes in BOOK VALUE 50,000.00
No more liability to be showed in the BALANCE SHEET
Credit what goes out Sale proceeds - 60,000.00
Gain on sale of asset (Credit all incomes and gains) Gain on sale of asset 10,000.00
 EXAMPLE 2
Asset 100,000.00
Less: Accm.dep - 50,000.00
Debit what comes in BOOK VALUE 50,000.00
Asset sold for LOSS (Debit all expenses and losses)
No more liability to be showed in the BALANCE SHEET Sale proceeds - 30,000.00
Credit what goes out LOSS 20,000.00

Provisions are charge on PROFITS Provisions needs to be created in business irrespective o

Reserves are appropriation of PROFITS Reserves are created only if we get the profts

If provision is created on any asset, concerned provision amount should be deducted from the asset va

Asset Liability
Buildi 5,000,000.00 Non-current asset Prov. On Buildings 400,000.00

Net value of Buildings 4,600,000.00

Debtors XXXXXXXX
Less:- Bad debts XXXXX
XXXXXXXX
Less:- Provision for Bad de XXXXX
but it will be reversed in the next quarter wherein a new provision would be posted)

d debts is created basis on the aging of the debtors which is greater than 180 days from the date of transaction

Provisions are created on Quarterly basis

0-30 31-60 61-90 91-120 121-150
 Q1 Permanent -50000
Q2 Permanent 50000 -75000
Journal entries
are posed on Q3 Permanent 75000 -60000
quaterly basis Q4 Permanent 60000 -82000

cannot be withdrawn within one year)

 2023
12L JAN 23 to DEC 23, We posted 1 lakh per month
12L

se of audit provision when invoice is paid to the VENDOR

CORRECT ENTRY
3L Debit Provision for audit fee To reduce the liability (Provision is our liability)
3L Credit Transitory bank account

payment, by hitting to the P&L, Your business advised you to release the provision

3L To reduce the liability

3L to avoid duplication of cost

ce payment, there is no ncessity of posting the THIRD JOURNAL ENTRY BY R2R team.

towards full and final settlement from the customer

ney from these customers

third party agents and
received from the agents)

2% 5% 10% 16% 30%

91-120 121-15151-1181-210 361-390

ths - WHAT IS THE JOURNAL ENTRY?

120,000

e due date
 120,000

n a monthly basis? 10,000

 All are accruals are posted on REVERSING basis

ORE LIABILITY
what goes out

Debit
Credit
Debit
Debit
Credit
Debit Asset
 Credit Liability
Credit Liability

tangible assets is called AMORTIZATION

xed assets is called DEPRECIATION

Accumulated depreciation
Credit Liabilities Provision for depreciation
Depreciation fund

Provision for dep. Or Dep. FUND

Asset value Life span is 12 years
120,000.00 10,000.00
833.33
Dep. Per annum is INR 10,000/-
 DR 30000
DR 50000
DR 20000
CR 100000

ted in business irrespective of getting PROFITS

we get the profts

e deducted from the asset value in the BS

Non-current liability

151-180
sion is our liability)