Book-Keeping and Accountancy: Fundamentals and Journal
This domain tests the accounting equation, the rules behind debit and credit, and your ability to record transactions in journal form with narration.
Basic terms
Capital, drawings, assets (fixed and current), liabilities, revenue, expense, goods, debtor, creditor, stock. Drawings are the owner's withdrawals and reduce capital - never an expense.
Accounting equation and dual aspect
Assets = Liabilities + Capital. Every transaction affects two or more items and keeps the equation balanced.
Golden rules
- Personal account: debit the receiver, credit the giver.
- Real account: debit what comes in, credit what goes out.
- Nominal account: debit expenses and losses, credit incomes and gains.
Journal format
Date | Particulars | L.F. | Debit | Credit, followed by a narration. A compound entry records several accounts in one entry; an opening entry brings in the previous year's assets and liabilities.
Worked example
(i) Ram started business with cash ₹50,000: Cash A/c Dr 50,000 to Capital A/c 50,000. Cash is a real account (comes in); capital is personal (giver credited). (ii) Bought furniture for cash ₹8,000: Furniture A/c Dr to Cash A/c. (iii) Sold goods for cash ₹9,000: Cash A/c Dr to Sales A/c - sales is nominal, so it is credited. Check: assets 50,000 − 8,000 + 8,000 + 9,000 = 59,000 = capital 50,000 + profit 9,000.
Traps
Debiting cash when it goes out; treating drawings as an expense; omitting narration; recording a credit sale as cash; forgetting that the equation must balance after every entry.