Transactions are first recorded in the journal (book of original entry) from source documents such as invoices, cash memos, receipts and vouchers, and then posted to the ledger.
Rules of debit and credit
| Type of account | Increase | Decrease |
|---|---|---|
| Assets | Debit | Credit |
| Expenses and losses | Debit | Credit |
| Liabilities | Credit | Debit |
| Capital | Credit | Debit |
| Revenues and gains | Credit | Debit |
Writing a journal entry
- Find the two accounts affected.
- Decide the type of each account.
- Apply the rule: which account increases or decreases, and on which side.
- Write the debit first, then "To" the credit account, the amounts and a narration.
Examples
- Goods sold to Ravi on credit: Ravi A/c Dr. To Sales A/c.
- Paid salary: Salary A/c Dr. To Cash A/c.
- Goods withdrawn for personal use: Drawings A/c Dr. To Purchases A/c.
Ledger
Each account has a debit side and a credit side. Post every journal entry to both accounts, then balance: total the heavier side, write the difference on the lighter side as "By/To Balance c/d", and bring it down as the opening balance.
Learn this chapter with Ronak Sir
Classroom batches in Sector 9, Faridabad and recorded lectures online. Book a free demo class or call +91 83685 45620.