Accounting is defined at systematic, summarized recording of business transactions in the books of account. In other words the books of your company can be treated as medical reports that show the health of your company. To learn accounting, it is necessary to understand the fundamentals of Debits & Credits, Assets & Liabilities, Income & Expenses to prepare & maintain accounts systematically & correctly.
What is transaction?
Transactions means transfer of money from one party to another. For eg. Sale of Computer, Purchase of Furniture etc.
What is debtor?
Debtor is that person who owns money to the business on account of credit sale of goods or advance given
What is creditor?
Creditor is that person to whom the business owns money on account of credit purchase of goods or loan taken.
What is Asset?
Assets are the thing of value owned by the business for eg. Cash, Unsold stock, Furniture, Building, Vehicle, Shares, Money due from the Debtors (Customers)
What is Liabilities?
Liabilities is that sum of money which the business owes to outsiders for eg. Capital (Amount invested by proprietor to start the business), Loan taken from Bank, friends, relatives, money to be given to Creditors (Suppliers).
What is capital?
The Owner of Business who have invested amount in the business to start the business ie. Loan given by proprietor to the business which also main that Capital is one of the liability of business.
What is cash transaction?
When assets or goods are sold on cash or purchased on cash than this transaction is known as cash transaction.
What is credit transaction?
When asset or goods are sold on credit or purchased on credit then this transaction is known as Credit transaction.
What is Transaction System?
There are two systems for recording the transaction i.e Double entry system & single entry system
A Double entry system:
is based on the fact that a transaction is double-sided. If one receives something then either (1) some other person has given it or (2) stock of something else has reduced or (3) some services has been rendered. So each transaction has to be recorded in both the aspects.
A Single entry system:
is concerned with only one side or transaction, either you pay someone or you receive from someone.
What are the Rules for Recording Transactions ?
Whenever any transaction takes place an accounts is either debited or credited .
The three rules for recording transactions which are as follows :
Three types of Rules for Recording Transactions .
1 ) Real Account 2 ) Personal Account 3 ) Nominal Account
1 ) Personal Account – Debit the Receiver and Credit the Giver : – Let us understand the rule by means of example Suppose Ajay buys goods from Sachin. Here ….
A ) Shubhadip has received the goods b ) Pradip has given the goods
C ) Shubhadip has to pay the price of goods d ) Pradip is entitled for a credit
e ) Shubhadip is entitled for a debit
In accounting , SHUBHADIP will be Debited & PRADIP will be Credited.
Later on when SHUBHADIP pays to PRADIP, then PRADIP’s account will have be debited & SHUBHADIP’s account has to be credited.
2 ) Real Account – Debit What Comes in and Credit What Goes Out :- Suppose you buy furniture for your shop on cash. Then according to above rule furniture account will be debited (as furniture comes in ) and cash account will be credited (as cash goes out).
3 ) Nominal Account – Debit all Expenses / Losses and Credit all income / Gains :- Suppose you hired a shop on rent then accounting as above rule , you will have to debit the Rent A/C & credit the Cash A/C……….
After accounts are prepared the net results of debits and credits of each account are assessed . If the total of debits are more , the balances is known as Debit Balance and if the total of credits are more , the balances is known as Credit Balance.
What is Journalizing Accounts?
It is the process of recording your day to day transactions in chronological order classified into debits & credits . In manual accounting transaction is first posted into Journal & then each accounts from journal is then posted into Ledgers.
The Journal is divided into 5 columns
Date : Records the date of transaction with its month & year.
Particulars : Records the details of business transaction. A narration is also written in this column. (Narration means detail explanation of journal entry)
LF(Ledger Folio) : Posting of each journal entries is done in ledger accounts. It is necessary that there should be certain reference to the page number of Ledger.
This column contains the page number of ledger.
Debit : The amount debited under a transaction.
Credit : The amount credited under a transaction
Note :- Under any transaction the total of debit column of the journal should be the same as that of Credit Column
Golden Rules :
Personal Account :
i. Any Person as XYZ, RAM, SHYM etc.
ii. Any Company School, Collage, Bank, Trust, Club, Fund, Investor, Supplier, Customar, Capital etc.
Real Account :
i. Any Asset, Mainly Fixed Asset(Furniture, Computer etc)
ii. Cash(Current Asset) etc.
Nominal Account :
i.Any Expencess and income Related Ledger(Purchase,Sales,Employee Salary,Payment Vecived)
ii. Salary(Telephone Bill,Electric Bill,Discount Vecived,income)
Personal Account :
i. Dr.(Debit) The Receiver.
ii. Cr.(Credit) The Giver.
Real Account :
Dr.(Debit): What Comes into the Business is Debited(Increase)
Cr.(Credit): What Goes out of the Business is Credited(Decrease)
Nominal Account :
All Expencess and all Losses are Always Debited.(Electric Bill, Salary Head)
All income and Gains are Always Credited.(Source of income)
Voucher Types …Shortcut Keys
Payment... F5
Receipt...F6
Contra…F4
(This Type is Used only for Cash and Bank Related Centries i.e. Cash Deposited into Bank, Cash Withdrawn from Bank or Amount Transferred from Bank to Another Bank)
Journal …F7
(This Type is Used for Non-Cash and Non-Bank Related Entries, Adjustment Entries)
