Book-Keeping and Accountancy · Ch 2 — Meaning and Fundamentals of Double Entry Book-Keeping
Analysing a Transaction into Debit and Credit
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Analysing a Transaction into Debit and Credit
Whichever approach is used, analysing any transaction into its debit and credit follows the same logical sequence of steps.
Steps to analyse a transaction
- Read the transaction carefully and identify the TWO accounts it affects.
- Classify each account — under the Traditional Approach (Personal / Real / Nominal) or the Modern Approach (Asset / Liability / Capital / Revenue / Expense).
- Decide the effect on each account — has it received or given (Traditional), or has it increased or decreased (Modern)?
- Apply the relevant rule to each of the two accounts to decide which is debited and which is credited.
- Check that the amount debited equals the amount credited — this must always be true.
Worked example — analysing four transactions (Modern Approach)
| Transaction | Accounts involved | Classification | Effect | Debit / Credit |
|---|---|---|---|---|
| (i) Purchased goods for cash ₹5,000 | Purchases A/c; Cash A/c | Expense; Asset | Expense increases; Asset decreases | Debit Purchases A/c ₹5,000; Credit Cash A/c ₹5,000 |
| (ii) Paid salary ₹3,000 | Salary A/c; Cash A/c | Expense; Asset | Expense increases; Asset decreases | Debit Salary A/c ₹3,000; Credit Cash A/c ₹3,000 |
| (iii) Received commission ₹1,000 in cash | Cash A/c; Commission Received A/c | Asset; Income | Asset increases; Income increases | Debit Cash A/c ₹1,000; Credit Commission Received A/c ₹1,000 |
| (iv) Sold goods to Mohan on credit ₹8,000 | Mohan's A/c (Debtor); Sales A/c | Asset; Income | Asset (amount receivable) increases; Income increases | Debit Mohan's A/c ₹8,000; Credit Sales A/c ₹8,000 |
The SAME four transactions, analysed under the Traditional Approach, give identical debit/credit answers:
| Transaction | Classification | Rule applied | Debit / Credit |
|---|---|---|---|
| (i) Purchased goods for cash | Purchases A/c = Nominal; Cash A/c = Real | Debit expense (Nominal); Credit what goes out (Real) | Debit Purchases A/c; Credit Cash A/c |
| (ii) Paid salary | Salary A/c = Nominal; Cash A/c = Real | Debit expense (Nominal); Credit what goes out (Real) | Debit Salary A/c; Credit Cash A/c |
| (iii) Received commission in cash | Cash A/c = Real; Commission Received A/c = Nominal | Debit what comes in (Real); Credit income (Nominal) | Debit Cash A/c; Credit Commission Received A/c |