1. ACCOUNTING PROCEDURE: DOUBLE ENTRY SYSTEM
Samir K Mahajan

2. DOUBLE ENTRY SYSTEM
Each transaction in a business concern, when closely analysed, reveals two aspects such as debit and credit.
Debit indicate take (or receiving aspect or incoming aspect) , expenses or loss aspect.
Credit represent giving aspect (or outgoing aspect) , income or gain aspect.
These two aspects namely “Debit aspect” and “Credit aspect” form the basis of Double Entry System.
The basic principle of this system is, for every debit, there must be a corresponding credit of equal amount, and for every credit, there must be a corresponding debit of equal amount.
Samir K Mahajan

3. APPROACHES OF RECORDING
There are two approaches for recording a transaction.
Traditional Approach
Accounting Equation Approach
Samir K Mahajan

4. TRADITIONAL APPROACH
Traditional approach is also called as the British Approach. Recording of business transactions under this method are formed on the basis of the existence of two aspects (debit and credit) in each of the transactions. All the business transactions are recorded in the books of accounts under the ‘Double Entry System’
Samir K Mahajan

5. ACCOUNT British Approach contd.
An account is a record of all business transactions relating to a particular head say person or asset or liability or expense or income. The place where such a record is maintained is termed as an ‘Account’.
All accounts are divided into two sides. The left hand side of an account is called Debit side and the right hand side of an account is called Credit side. In the abbreviated form Debit is written as Dr. and Credit is written as Cr.
For example, the transactions relating to cash are recorded in an account, entitled ‘Cash Account’ and its format will be as given below:
Debit (Dr) Cash Account Credit (CR)
Samir K Mahajan

6. CLASSIFICATION OF ACCOUNT
British Approach contd.
Transactions can be divided into three categories:
i. Transactions relating to individuals and firms
ii. Transactions relating to properties, goods or cash
iii. Transactions relating to expenses or losses and incomes or gains.
On that basis, accounts can also be classified into Personal, and impersonal (Real and Nominal).
Personal Accounts :The accounts which relate to persons, individuals and firms. Personal accounts include
Natural Persons : Accounts which relate to human beings or individuals. E.g. Mohan’s A/c, Shyam’s A/c etc.,
Artificial persons : Accounts which relate to firms or institutions, companies, factories, establishment etc. e.g. HMT Ltd., LIC
Representative Persons: Accounts which relate to a particular person or group of persons. E.g, outstanding salary account, prepaid insurance account, debtors’ account or creditors’ account, capital account, drawing account . In outstanding salary account, instead of using the name of workers whose wages are is outstanding , we shall be crediting outstanding wages account who represents workers, whose wages are payables.
Samir K Mahajan

7. CLASSIFICATION OF ACCOUNT contd.
British Approach contd.
Impersonal Accounts: All those accounts which are not personal accounts. Impersonal Accounts include
Real Accounts: Accounts relating to properties and assets, goods and cash which are owned by the business concern. Real accounts include tangible and intangible accounts. E.g. Land, Building, Goodwill, Purchases, sales, Cash Account etc.
Nominal Accounts: These accounts relate to incomes and expenses and gains/income and losses of a business concern. They do not have any existence, form or shape. They E.g. salary account, discount account, dividend account
Samir K Mahajan

8. Rules for Debiting and Crediting
British Approach contd.
In the traditional approach, all the accounts are classified into the following three types.
Personal Accounts
Real Accounts
Nominal Accounts
Golden Rules for Debit and Credit:
Personal Accounts – Debit the receiver and Credit the giver , debit the debtor and credit the creditor
Real Accounts – Debit what comes in and credit what goes out
Nominal Accounts – Debit all expenses & losses and, Credit all incomes & gains
Samir K Mahajan

9. ACCOUNTING EQUATION APPROACH
Accounting Equation Approach is also called as the American Approach. Under this method transactions are recorded based on the accounting equation or balance sheet equation.
i.e.,
Assets = Liabilities + Owners’ Equity
Where , Owners’ equity = Capital + Revenue –Expenses
Accounting equation may be expanded as
Assets = Liabilities + Capital + Revenue –Expenses
Samir K Mahajan

10. RULES FOR DEBITING AND CREDITING
In Accounting Equation Approach, all the accounts are classified into the following five categories
Assets Accounts
Capital Account
Liabilities Accounts
Revenues or Incomes Accounts
Expenses or Losses Accounts
Golden Rules for Debit and Credit:
Increases in assets are debits; decreases in assets are credits.
Increases in capital are credits; decreases in capital are debits.
Increases in liabilities are credits; decreases in liabilities are debits.
Increases in incomes and gains are credits; and decreases in incomes and gains are debits.
Increases in expenses and losses are debits; and decreases in expenses and losses are credits
American Approach contd.
Samir K Mahajan