Principales of Accounting

Rules of Debit and credit/ Rules of Journalizing

Rules based on type of account

Rules based on accounting equation
Rules based on type of account

Under double entry book keeping

system, account is classified into
three types. They are:
1.Personal Account
2.Real Account
3.Nominal Account
Rules based on type of account
• 1. Personal Account
A person can be natural such as people like us
and an artificial person such as business firms.
According to this account:
Dr. the receiver
Cr. The giver

Ram a/c, site a/c, Dharan Traders a/c are

example of personal a/c
 Rules based on type of account
• Example:
• A) cash paid to Ram Rs. 5000.00
• Here Ram is natural person and his a/c is debited according to rules. he is a receiver.
• B) cash paid to Dharan Traders Rs. 10,000.
• Here Dharan traders is an artificial person and his a/c is debited according to rules.
Dharan trader is receiver.
 Rules based on type of account
• 2. Real Account
• Accounts which are related with assets is called Real account. There are two type
of assets: Tangible and intangible. According to this account:
• Dr. what comes in
• Cr. What goes out
• Cash a/c, debtors a/c, goods a/c , furniture a/c
 Rules based on type of account

• Example:
• A) goods purchased of Rs. 25,000.00
• Here good is assets and it is debited according to rules. Here goods (assets)
comes in.
• B) Machinery purchased of Rs. 100000.00
• Here machinery is assets and it is debited according to rules.
Rules based on type of account

3. Nominal account
Accounts which are related with income, gain, expenses and losses is called
nominal account. According to this:
Dr. all the expenses and losses
Cr. all income and gain
Rent a/c, salary a/c, commission a/c, discount a/c
Rules based on type of account

• Example:
• A) House rent paid Rs. 25,000.00
• Here rent is expenses and it is debited according to rules
• B) commission received Rs 5000.00
• Here commission received is income and it is debited according to rules.
 Rules based on accounting equation
SN Effects of transaction Dr. /Cr.

1. Increase in assets and expenses/losses Dr.

2. Decrease in assets and expenses/losses Cr.

3. Increase in capital/ liabilities, income/gains Cr.

4. Decrease in capital/ labilities, income/gains Dr.

 Journal Entry

• Accounting process starts with the identification of financial

transaction. Such finical transaction are preliminary
recorded in certain books in systematic order according to
rules of Dr. and Cr. which book is called Journal.
 Journalizing
• 1. A business started with cash Rs.
1,00,000 and furniture worth Rs. 50,000.
SN Particular L Dr. Cr.
F Amount Amount

1. Cash a/c 100000

Dr. 50,000
Furniture a/c 1,50,000
Dr.
To Capital a/c…….

(Being Business started with cash and

furniture)
150,000 150,000
 Journalizing
2. Goods purchased from Ram on cash of
Rs. 30,000.
SN Particular L Dr. Cr.
F Amount Amount

2. Goods or Purchased a/c Dr. 30,000

To Cash a/c 30,000

(Being goods purchased on cash)

30,000 30,000
 Journalizing
4. Goods worth Rs. 20,000 Purchased from
Mr. Hari.
SN Particular L Dr. Cr.
F Amount Amount

4. Goods or purchase Dr. 20,000

To Hari a/c 20,000

(being goods purchased fro Mr. Hari

on cerdir)
20,000 20,000
 Journalizing
5. Goods worth Rs. 5000 sold on cash.

SN Particular L Dr. Cr.

F Amount Amount

5. Cash a/c Dr. 5000

To goods or sales a/c 5,000

(being goods sold on cash)

5,000 5,000
 Journalizing
6. Goods worth Rs 3000 sold to Mr. Ram.

SN Particular L Dr. Cr.

F Amount Amount

5. Ram a/c Dr. 3000

To Goods or sales a/c 3000

(being goods sold on credit to Mr.

Ram)

3,000 3,000
 Journalizing
8. Purchased of furniture worth Rs. 10,000
from Dharan Furniture House.
SN Particular L Dr. Cr.
F Amount Amount

5. Furniture a/c Dr. 10,000

To Dhahran Furniture House 10,000

(being furniture purchased on credit)

10,000 10,000
 Journalizing
8. Purchased of furniture worth Rs. 10,000
from Dharan Furniture House.
SN Particular L Dr. Cr.
F Amount Amount

5. Furniture a/c Dr. 10,000

To Dhahran Furniture House 10,000

(being furniture purchased on credit)

10,000 10,000
 Journalizing
Drawing of capital:
When the owner of business takes some cash,
goods or some other assets from business for
office use, it is consider as drawings.
 Journalizing
Examples
1) Rs 5000 withdrew from office for personal use.
SN Particular L Dr. Cr.
F Amount Amount
1 Drawing a/c Dr. 5000
To cash a/c 5000

(being cash withdrew for personal use)

5000 5000

2) Goods worth Rs. 10,000 withdrawn from business for personal use.
SN Particular L Dr. Cr.
F Amount Amount
1 Drawing a/c Dr. 10,000
To goods a/c 10,000

(being goods withdrew for personal use)

10,000 10,000
 Journalizing
Income:
When incomes are earned either they received by
cash or cheque. It belongs to nominal a/c. Bothe
represents the assets.
 Journalizing
Examples
1) Interested received Rs. 20,000 from bank.
SN Particular L Dr. Cr.
F Amount Amount
1 Cash a/c Dr. 20,000
To Interest a/c 20,000

(being interest received from bank)

5000 5000

2) Commission received Rs, 20,000.

SN Particular L Dr. Cr.
F Amount Amount
1 cash a/c Dr. 20,000
To commission a/c 20,000

(being commission recived)

20,000 20,000
 Journalizing
Expense:
When expenses occur it is paid either by cash or
cheque. Bothe represents assets. It belongs to
nominal a/c.
 Journalizing
Examples
1) Hose rent of Rs. 25,000 to house owner.
SN Particular L Dr. Cr.
F Amount Amount
1 House Rent a/c Dr. 25000
To cash a/c 25000

(being house rent paid)

25000 25000

2) Salary paid amounting Rs, 20,000.

SN Particular L Dr. Cr.
F Amount Amount
1 salary a/c Dr. 20,000
To cash a/c 20,000

(being salary paid)

20,000 20,000
 Journalizing
Depreciation
The reducing value of assets due to use of assets is
called deprecation. It is treated as expenses. It is
consider as nominal account.
 Journalizing
Examples
1) Depreciation charged on plant and machinery @10%. The value of
plant and machinery is Rs. 100000.

SN Particular L Dr. Cr.

F Amount Amount
1 Depreciation a/c Dr. 10,000
To Plant and machinery a/c 10,000

(being depreciation charged)

10,000 10,000
 Journalizing
Bad debts
The irrecoverable amount from debtors is
called bad debts. It is consider as loss.
 Journalizing
Examples
1) A debtor of Rs. 10,000 was declared and nothing could be
recovered.

SN Particular L Dr. Cr.

F Amount Amount
1 Bad debts a/c Dr. 10,000
To Debtors a/c 10,000

(being bad debts written off)

10,000 10,000
 Journalizing
Goods given as charity/ Donation
Some goods are give as charity. In such case
charity is treated as expense and it consider as
nominal account.
 Journalizing
Examples
Goods worth Rs. 5000 given as charity/ donation.

SN Particular L Dr. Cr.

F Amount Amount
1 Charity/ Donation a/c Dr. 5000
To cash a/c 5000

(being goods distributed as charity)

10,000 10,000