Basic Accounting
Basic accounting tests the accounting equation, double-entry rules and the path from journal to financial statements. BFSI roles need this to read customer financials and record transactions accurately.
Core rules
- Assets = Liabilities + Capital.
- Debit increases assets and expenses; credit increases liabilities, income and capital.
- Every transaction has equal debits and credits.
- Journal → ledger → trial balance → profit and loss account → balance sheet.
- Accrual accounting records income when earned and expenses when incurred, not when cash moves.
- Depreciation allocates an asset’s cost over its useful life.
Worked example
A business takes a ₹1,00,000 bank loan and buys furniture for ₹20,000. Journal entries: Bank A/c Dr ₹1,00,000; Loan A/c Cr ₹1,00,000. Then Furniture A/c Dr ₹20,000; Bank A/c Cr ₹20,000. Reasoning: the loan is a liability, not income; furniture is an asset, so the equation remains balanced.
Traps that cost marks
- Treating a loan receipt as revenue.
- Confusing capital expenditure with revenue expenditure.
- Forgetting depreciation or accrued expenses.
- Recording a transaction twice because the bank statement and cash book both show it.