Three Golden Rules

Real A/c Personal A/c Nominal A/c

Debit What Comes in Debit the receiver Debit all expenses and losses
Credit What Goes out Credit the giver Credit all incomes and gains
All Assets
Goods Owners Capital All Expenses & Losses
Cash Drawings All Incomes & gains
Customers / debtors
Suppliers / creditors
Bank

Logic: 1

Any outstanding that should be added with the respective account

Any prepaid or Advance received should be subtracted with the respective account

Logic: 2

To increase the debit further debit, to decrease the debit amount, credit the a/c

To increase the credit further credit, to decrease the credit amount, debit the a/c

1. Closing Stock Rs. 6,00,000 (Asset. Debit balance. Closing Stock always debit balance so debit
closing stock and credit trading a/c)

Dat Particulars LF Debit Rs. Credit Rs.

e
Closing stock A/c Dr 6,00,000
To Trading A/c 6,00,000
(Closing stock recorded)

2. Provide 6% interest on capital of Rs. 16,00,000 (Expenses… Debit interest on capital …Will
raise capital – Capital shows credit balance so to increase the capital further credit the
capital)

Dat Particulars LF Debit Rs. Credit Rs.

e
Interest on capital A/c Dr 96.000
To Capital A/c 96.000
(6% Interest on Capital of Rs. 16,00,000)

3. Rent Received in advance Rs. 5,000 (Crdit… Income received in advance should be decresed…
income will be credit side… to decrease it, it should be debited)… So debit rent received a/c
and credit rent received in advance a/c)

Dat Particulars LF Debit Rs. Credit Rs.

 e
Rent received A/c Dr 5,000
To rent received in advance A/c 5,000
(Rent received in advance)

4. Interest accrued on investment Rs. 2000 (Interest earned Credit…but not received yet… this
will be added with the interest on investment a/c … so further credit the Interest on
investment a/c and debit the interest accrued on investments)

Dat Particulars LF Debit Rs. Credit Rs.

e
Accrued on Investment A/c Dr 2,000
To Interest on investment A/c 2,000
(Accrued interest on investment)

5. Insurance Premium prepaid Rs. 1000 (Expenses… prepaid means we need to decrease the
respective account… to decrease the debit we need to credit. So credit the Insurance
premium a/c and debit the insurance premium prepaid a/c)

Dat Particulars LF Debit Rs. Credit Rs.

e
Insurance premium prepaid A/c Dr 1,000
To Insurance premium A/c 1,000
(Prepaid insurance premium)

6. Wages outstanding Rs. 15,000 (Expenses… outstanding means need to add the respective
account… to add the debit further debit. So debit the wages account and credit the wages
outstanding account.)

Date Particulars LF Debit Rs. Credit Rs.

Wages A/c Dr 15,000
To wages outstanding A/c 15,000
(Wages outstanding)

2. Pass necessary adjusting entries for the following adjustments

a) Interest on drawings Rs. 10,000/-

Usually interest on drawings should be added with drawings and then subtracted from
Capital in the balance sheet. Here in the adjusting entry straight away we subtract it from capital. So
Capital has to be reduced. So that, the entry will be

Dat Particulars LF Debit Rs. Credit Rs.

e
Capital A/c Dr 10,000
To Interest on drawings A/c 10,000
 (Interest on drawings)

b) Interest on Loan outstanding Rs. 5,000/-

Interest on loan expenses to the company. So It will be debit balance. Outstanding means we
need to add that amount to that appropriate account. So you need to add Outstanding interest with
interest on loan account. Entry will be

Dat Particulars LF Debit Rs. Credit Rs.

e
Interest on Loan A/c Dr 5,000
To Interest on Loan outstanding A/c 5,000
(Interest on loan outstanding)

c) Depreciation @ 5% on furniture Rs. 50,000/-

First calculate 5% of 50,000, that is Rs. 2500/-. Depreciation is Expenses to the company and
should be subtracted from furniture. Furniture shows debit balance. To reduce it you must credit it.
So the entry will be

Date Particulars LF Debit Rs. Credit Rs.

Depreciation A/c Dr 2,500
To Furniture A/c 2,500
(Depreciation on furniture 50,00*5/100)

d) Write off bad and doubtful debts Rs. 3000/-

Date Particulars LF Debit Rs. Credit Rs.

Bad debts A/c Dr 3,000
To Sundry debtors A/c 3,000

e) Provided Provision for bad and doubtful debts @ 5% on sundry debtors Rs. 4,00,000/-

5% of 4,00,000 is Rs. 20,000/- This is provision only, so no need to reduce the sundry
debtors. But it should be treated as expenses to the company. So it will be reflected in P & L account

Date Particulars LF Debit Rs. Credit Rs.

Profit and Loss A/c Dr 20,000
To Provision for bad and doubtful debts A/c 3,000

f) Provide provision for discount on creditors @ 2% on sundry creditors Rs. 3,50,000. It is also
provision. So do not deduct it from the sundry creditors. Just

Date Particulars LF Debit Rs. Credit Rs.

Provision for discount on creditors A/c Dr 7,000
To Profit and Loss A/c 7,000
(Prov for discount on cr 3,50,000x2/100)