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EVERY BUSINESS TRANSACTION
INVOLVES RECEIVING ASPECT AND
GIVING ASPECT.
EVERY DEBIT HAS AN EQUIVALENT
CREDIT.
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In cash system, transactions are recorded only if
cash is received or paid. E.g. Government
accounting.
In mercantile system, cash and credit transactions
are recorded. E.g. Credit sales or purchases,
salary payable, rent receivable, interest accrued
but not received, depreciation provided, etc.
Personal accounts : Accounts of debtor &
creditors, natural & artificial persons like bank,
club a/c, salary payable, outside rent account
etc.
 Real accounts : Tangible & Intangible real
accounts ( All assets accounts)
 Nominal accounts : Impersonal accounts
(All expense & income accounts) e.g. salary
account
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Classification of Accounts
Personal
Real
Natural personal
Tangible real
Artificial personal
Intangible real
Representative
personal
Nominal
In respect to personal accounts :
- Debit the receiver & credit the giver
 In respect to real accounts :
- Debit what comes in & credit what goes out
 In respect to nominal accounts :
- Debit all expenses & losses and credit all
incomes & gains.
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Rules of
debit &
credit
Types of accounts
Debit
Credit
Personal account
The receiver
The giver
Real account
What comes in
What goes out
Nominal account
All expenses &
losses
All incomes & gains
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Suchitra started her business with cash
Borrowed from Mahesh
Purchased furniture
Purchased furniture from Mohan on credit
Purchased goods for cash
Purchased goods from Ram on credit
Sold goods for cash
Sold goods to Shyam on credit
Received cash from Shyam
Paid cash to Ram
Deposited into bank
Withdrew cash for personal use
Withdrew from bank for office use
Withdrew from bank for personal use
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Paid Ram by cheque
Paid salary
Paid rent by cheque
Goods withdrawn for personal use
Paid an advance to suppliers of goods
Received an advance from customers
Paid interest on loan
Paid installment of loan
Interest allowed by bank
Sources of Funds = Application of funds
Or
Owner’s equity = Asset
Or
Owner’s equity + outside liabilities = Assets
Or
Liabilities + proprietor’ equity = Assets
where, L = liabilities
P = proprietor’s equity
A = assets
hence,
OR
OR
OR
L+P=A
P=A–L
L=A–P
A – L- P = ZERO
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10.
MADAN COMMENCED BUSINESS WITH CASH OF
RS. 70000.
PURCHASED GOODS ON CREDIT RS. 14000
WITHDREW FOR PRIVATE USE RS. 3000
GOODS PURCHASED FOR CASH RS.12000
PAID WAGES RS. 5000
PAID TO CREDITORS RS. 10000
SOLD GOODS ON CREDIT( CP 18000) RS. 22000
SOLD GOODS ON CASH( CP 3000) RS. 6000
PURCHASED FURNITURE FOR CASH RS. 5000
RECEIVED FROM DEBTORS RS. 11000
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10.
Ganesh started business with a capital of Rs. 40000.
He purchased stock of goods Rs. 30000.
He sold goods on cash Rs. 40000 cost of which is Rs.
25000.
Bought goods on credit Rs. 10000.
Sold goods on credit for Rs. 18000 (c.p. Rs. 10000)
Paid sales commission Rs. 5000.
Received cash discount Rs. 3000.
Purchased furniture Rs. 10000.
Received cash from debtors Rs. 15000.
Paid cash to creditors Rs. 6000.