Meaning and Fundamentals of Double Entry Book-keeping
Dual aspect and rules
Every transaction has two effects, so double entry records a debit in one account and an equal credit in another. The accounting equation is Assets = Capital + Liabilities. Profit increases capital; drawings and loss reduce it. Traditional rules are: personal accounts-debit the receiver, credit the giver; real accounts-debit what comes in, credit what goes out; nominal accounts-debit expenses and losses, credit incomes and gains. Under the modern approach, increase in an asset is debited and decrease credited; increase in a liability or capital is credited and decrease debited; expenses are debited and incomes credited.
Worked example
Ravi starts with ₹1,00,000 cash and a ₹20,000 bank loan. Assets cash ₹1,20,000 = capital ₹1,00,000 + liability ₹20,000. He buys furniture for ₹15,000 cash: cash falls to ₹1,05,000 and furniture becomes ₹15,000, so total assets remain ₹1,20,000. He sells goods costing ₹8,000 for ₹11,000 cash: cash rises by ₹11,000, stock falls by ₹8,000, and capital rises by the profit of ₹3,000. The equation still balances because each transaction has equal debit and credit effects.
Traps that cost marks
Do not debit and credit the same account for one transaction. Drawings reduce capital; they are not an expense. A loan is a liability, not income. A credit sale increases a debtor and sales, not cash. In equation questions, show every effect before calculating the final totals. Do not confuse capital expenditure with revenue expenditure.