Accounting and Bookkeeping Basics
What the exam tests
Accounting and bookkeeping basics tests double entry, journal and ledger, trial balance, cash book, bank reconciliation, depreciation and GST outlines. Expect posting and classification items.
Core rules
- Every transaction has two aspects: debit one account and credit another, with equal totals.
- Debit what comes in, the receiver, an expense or an asset increase; credit what goes out, the giver, an income or a liability increase.
- Journal is the book of original entry; ledger is the book of final entry; the trial balance checks arithmetic equality, not correctness.
- Bank reconciliation starts with the cash book or bank statement and adjusts cheques issued but not presented, deposits not credited, bank charges and errors.
- Depreciation allocates the cost of a fixed asset over its useful life; it is not a cash payment.
Worked example
The business buys furniture for ₹20,000 cash. Furniture, an asset, increases, so debit Furniture ₹20,000; cash, an asset, decreases, so credit Cash ₹20,000. Post to the furniture account and cash account, then carry both to the trial balance. If the furniture were bought on credit from Ram, the credit would be to Ram’s account instead of Cash. The reasoning is that the account receiving the benefit is debited and the account giving the benefit is credited.
Traps
Debiting an increase in a liability, treating a loan receipt as income, and expecting the trial balance to detect every error are common. In bank reconciliation, a cheque issued but not presented means the cash book balance is lower than the bank statement; adjust in the correct direction.