1. Double Entry Accounting

2. MEANING OF DOUBLE ENTRY ACCOUNTING
EVERY BUSINESS TRANSACTION INVOLVES RECEIVING ASPECT AND GIVING ASPECT.
EVERY DEBIT HAS AN EQUIVALENT CREDIT.

3. CASH AND MERCANTILE SYSTEM OF DOUBLE ENTRY SYSTEM
In cash system, transactions are recorded only if cash is received or paid. E.g. Government accounting.
In mercantile system, cash and credit transactions are recorded. E.g. Credit sales or purchases, salary payable, rent receivable, interest accrued but not received, depreciation provided, etc.

4. IDENTIFICATION OF TYPES OF ACCOUNTS
Personal accounts : Accounts of debtor & creditors, natural & artificial persons like bank, club a/c, salary payable, outside rent account etc.
Real accounts : Tangible & Intangible real accounts ( All assets accounts)
Nominal accounts : Impersonal accounts
(All expense & income accounts) e.g. salary account

5. Classification of Accounts
Personal
Real
Nominal
Natural personal
Tangible real
Artificial personal
Intangible real
Representative personal

6. ACCOUNTING TRAIL Identify the transaction Preparation of vouchers
Recording as journal entries
Preparation of ledger accounts
Balancing the ledger accounts
Preparation of trial balance
Financial statement

7. TRANSACTIONS EVENTS
A transaction (either cash or credit) is a business activity involving transfer of money or money’s worth.
Assets acquired or sold, liabilities incurred or paid, expenses paid or payable, incomes received or receivable.
Events which are neither cash nor credit transactions but it has an impact on the financial position of a business.
Provision of bad debts, provision for repairs, depreciation, taxation, transfer of profit towards reserve fund or sinking fund or investment fluctuation fund.

8. Rules of debit and credit
In respect to personal accounts :
- Debit the receiver & credit the giver
In respect to real accounts :
- Debit what comes in & credit what goes out
In respect to nominal accounts :
- Debit all expenses & losses and credit all incomes & gains.

9. Rules of debit & credit Types of accounts Debit Credit
Personal account
The receiver
The giver
Real account
What comes in
What goes out
All expenses & losses
All incomes & gains
Nominal account

10. Pass Journal Entries Suchitra started her business with cash
Borrowed from Mahesh
Purchased furniture
Purchased furniture from Mohan on credit
Purchased goods for cash
Purchased goods from Ram on credit
Sold goods for cash
Sold goods to Shyam on credit
Received cash from Shyam
Paid cash to Ram
Deposited into bank
Withdrew cash for personal use
Withdrew from bank for office use
Withdrew from bank for personal use

11. Paid Ram by cheque
Paid salary
Paid rent by cheque
Goods withdrawn for personal use
Paid an advance to suppliers of goods
Received an advance from customers
Paid interest on loan
Paid installment of loan
Interest allowed by bank

12. Accounting equation
Sources of Funds = Application of funds Or Owner’s equity = Asset Owner’s equity + outside liabilities = Assets

13. Accounting equation
Liabilities + proprietor’ equity = Assets where, L = liabilities P = proprietor’s equity A = assets hence, L + P = A OR P = A – L OR L = A – P OR A – L- P = ZERO

14. Effect of transactions on Accounting Equation
Increase in one asset with decrease in another asset.
Increase in asset with increase in liability.
Increase in asset with increase in owner’s equity.
Increase in liability with decrease in liability.
Increase in liability with decrease in equity.
Decrease in asset with decrease in liability.
Decrease in asset with decrease in equity.

15. MADAN COMMENCED BUSINESS WITH CASH OF RS. 70000.
SHOW WHAT ACCOUNTS ARE AFFECTED IN THE FOLLOWING TRANSACTIONS. ALSO SHOW THE ACCOUNTING EQUATION FOR THE TRANSACTIONS
MADAN COMMENCED BUSINESS WITH CASH OF RS
PURCHASED GOODS ON CREDIT RS
WITHDREW FOR PRIVATE USE RS. 3000
GOODS PURCHASED FOR CASH RS.12000
PAID WAGES RS. 5000
PAID TO CREDITORS RS
SOLD GOODS ON CREDIT( CP 18000) RS
SOLD GOODS ON CASH( CP 3000) RS. 6000
PURCHASED FURNITURE FOR CASH RS. 5000
RECEIVED FROM DEBTORS RS

16. Ganesh started business with a capital of Rs. 40000.
SHOW WHAT ACCOUNTS ARE AFFECTED IN THE FOLLOWING TRANSACTIONS. ALSO SHOW THE ACCOUNTING EQUATION FOR THE TRANSACTIONS
Ganesh started business with a capital of Rs
He purchased stock of goods Rs
He sold goods on cash Rs cost of which is Rs
Bought goods on credit Rs
Sold goods on credit for Rs (c.p. Rs )
Paid sales commission Rs
Received cash discount Rs
Purchased furniture Rs
Received cash from debtors Rs
Paid cash to creditors Rs