topic 3 double entry book keeping
TRANSCRIPT
Double entry book keeping
By Srinivas Methuku
What do you know about double entry book keeping? Introduction Luca De Pacioli – 1494 Main Principle: “Every debit has corresponding
credit and every credit has corresponding debit with equal amount”.
Definition of double entry book keeping “Every business transaction has a two fold
effect and that it effects two accounts in opposite directions and if a complete record is to be made of each such transaction it would been necessary to debit one account and credit another account. It is this recording of two fold effect of every transaction that has given rise to the term Double Entry.” - By J.R. Batluboi
What are the advantages of double entry book keeping? Advantages of double entry book keeping:
1. Accuracy2. Business result3. Complete record4. Comparative study5. Common acceptance
Conventional Accounting System This method is traditional method of recording
accounting information. Indian system of accounting is the example of
conventional accounting system.
Point Conventional accounting system
Double entry book keeping system
Meaning It records incomplete business transactions
This method is scientific and records complete business transactions
Coverage It covers less details of transactions
It covers complete details of business transactions
Accuracy Arithmetic accuracy is not guaranteed
Arithmetic accuracy is guaranteed
Nature It is traditional method of recording business transactions
It is modern method of recording business transactions
Number of account books
Only two books are prepared (1) cash Book (2) Ledger
All subsidiary books/ Journals and Ledgers are prepared
Recording All transactions are basically recorded in only Cash book
All transactions are recorded in different Subsidiary Books / Journals
How can we classify the accounts?Personal accounts: All Persons• Natural person’s account. E.g. Natural Persons • Artificial person’s account. e.g. Institutions• Representative personal account. E.g. Prepaid and out
standing expenses
Real accounts: All assets• Tangible Real Account• Intangible Real Account
Nominal Accounts:• Expenses and losses
Classify the following accounts under Personal, Real and Nominal Accounts:i. Cash Accountii. Unpaid salary accountiii. Capitaliv. Fixtures accountv. Bank accountvi. Octopi accountvii. Prepaid insurance accountviii. Land and buildings
accountix. Loan accountx. Salary accountxi. Goods stolen by theft
account xii. Copyrights account
i. Printing and stationary a/cii. Bills payable a/ciii. Motor car a/civ. Capital a/cv. Goods destroyed by fire a/cvi. LIC a/cvii. Machinery a/cviii. Hyderabad municipal
corporation a/cix. Goodwill a/cx. Repairs and maintenance
a/cxi. Stationary a/cxii. Computer a/c
State the types of two accounts involved in the following:
a. Started business with cash 50,00,000b. Deposited cash into the bank 5,00,000c. Purchased goods for cash 3,00,000d. Paid rent 50,000e. Goods sold for cash10,00,000
Basic rules of accounting
Personal accounts
Real accounts Nominal accounts
Debit Debit the receiver
Debit what comes in
Debit all expenses and
losses
Credit Credit the giver Credit what goes out
Credit all incomes and
gains
Rules of debit and creditAssets a/c Liabilities
a/cCapital a/c Revenues/
Gains a/cExpenses /Losses a/c
Increases debit
Decreases debit
Decreases debit
Decreases debit
Increases debit
Decreases credit
Increases credit
Increases credit
Increases credit
Decreases credit
Analysis of transactions by applying rules of Debit & CreditTransactio
n
Two aspects
Accounts
involved
Categories
Rules applied
Account
debited
Account
credited
Started business with cash
Cash increasesProprietor provides funds
Cash a/c
Capital a/c
Assets a/c
Capital a/c
Increase in assets debited Increase in capital credited
Cash a/c
Capital a/c
Salary paid to Akash
Salary increases
Cash decreases
Salary a/c
Cash a/c
Expenses a/c
Assets a/c
Increases in expenses debited Decrease in cash credited
Salary a/c
Cash a/c
Deposited into the bank
Cash at bank increasesCash in hand decreases
Bank a/c
Cash a/c
Assets a/c
Assets a/c
Increase in asset debited
Decrease in asset credited
Bank a/c
Cash a/c