In Accounts,there are only 2 things
- Profit and Loss- Containing Expenses and Incomes
- Balance Sheet-Containing Liabilities and Assets
Rules for Accounting
All Expenses- Debit
All Incomes- Credit
All Liabilities- Credit if Increase (Debit if Decrease)
All Assets- Debit if Increase (Credit if Decrease)
If we know these rules, our no entry will be wrong
|
Profit and Loss |
|
|
Expense |
Incomes |
|
Dr |
Cr |
|
Balance Sheet |
|
|
Liabilities |
Assets |
|
Cr (Increase) |
Dr(Increase) |
|
Dr(Decrease) |
Cr (Decrease) |
EXAMPLES
Example 1:-
Internet Bill received from Reliance of Rs 2000
View answer
Entry:-
Internet Expense Dr 2000
To Reliance 2000
Explanation:-
(Internet Bill is an expense, hence we debit it
Reliance is a Creditor i.e. a liability, Since it increases, we Credit it
Example 1 Continued
Suppose Amount paid to Reliance by Cash 2000
View answer
Entry:-
Reliance Dr 2000
To Cash 2000
Explanation:-
(Reliance is our creditor liability, since we have paid him, our liability decreases, hence we debit it
(Cash is our asset, since it also decreases, we Credit it)
Entry 2
Machine purchased from AB Technologies 50000
Amount paid by cheque
View answer
Machinery A/c Dr 50000
To AB Technologies 50000
(Machinery is our Asset,since it increases,we debit it
AB Technologies is our Sundry Creditor i.e. Liability,since it increases,we Credit it
AB Technologies Dr 50000
To Bank 50000
(AB Technologies is our creditor liability, since we have paid him, our liability decreases, hence we debit it
(Bank is our asset, since it also decreases, we Credit it)
Example 3
Sales made to Max and Co Rs 30000.
Amount received by NEFT (National Electronic Fund Transfer i.e. amount received directly in bank account)
View answer
Entry
Max Dr 30000
To Sales 30000
(Since Sales is an Income, we credit it
Since Max is our Debtor i.e. Asset and it increases, we Debit it)
Bank Dr 300000
To Max 3000000
(Bank is our asset, since it increases, we debit it
Max is out Sundry Debtor, since it decreases, we credit it)