Accountancy · Ch 3 — Recording of Transactions - I
Summary
Summary
- Accounting equation: Every transaction affects at least two accounts, keeping the fundamental equation Assets = Liabilities + Capital in balance.
- Dual aspect principle: Each transaction has a debit and a credit of equal amount — this is the core of double-entry bookkeeping.
- Three golden rules of debit and credit:
- Real accounts (assets): Debit what comes in, credit what goes out.
- Personal accounts (persons/entities): Debit the receiver, credit the giver.
- Nominal accounts (expenses/losses, incomes/gains): Debit all expenses and losses, credit all incomes and gains.
- Journal entry format: Date, particulars (with narration), ledger folio, debit amount, credit amount. Debit entries are recorded first, then credit entries indented.
- Source documents: Vouchers (cash memos, invoices, receipts, pay-in-slips, cheques, debit/credit notes) provide evidence for each transaction before it is journalised.
- Cash vs. credit transactions: Cash transactions involve immediate exchange of money; credit transactions create a debtor (personal account) or creditor (personal account) until settlement.
- Trade discount vs. cash discount: Trade discount is deducted from the list price at the time of sale and not recorded in the books; cash discount is allowed for prompt payment and is recorded as an expense (debit side) or income (credit side).
- Goods and Services Tax (GST): Input GST (on purchases) is debited; Output GST (on sales) is credited; net GST payable/refundable is settled with the government. Entries use separate accounts for CGST, SGST/UTGST, and IGST. …