Bookkeeping and Double-Entry System
Bookkeeping and Double-Entry System tests whether you can turn a transaction into a journal entry, post it to ledgers, balance them and explain why some errors still leave the trial balance agreeing.
The three golden rules
- 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.
In the modern statement: debit increases assets and expenses; credit increases liabilities, capital and income.
Worked example
Goods worth ₹25,000 sold on credit to Ravi. Ravi is the receiver, so Ravi's account is debited ₹25,000; Sales is a nominal income, so Sales is credited ₹25,000. When Ravi pays later: Cash Dr ₹25,000, Ravi Cr ₹25,000. If he returns part of the goods, Returns Inward is debited (it reduces sales) and Ravi is credited.
Rectification and the trial balance
A trial balance that agrees is not proof of accuracy. Errors of principle, compensating errors and complete omission of one transaction from both sides leave it undisturbed. A one-sided posting does disturb it, and the difference is parked in a Suspense Account until the rectification entry is passed - either before or after the trial balance is drawn, which changes whether a journal entry alone suffices.
Traps that cost marks
- Swapping Returns Inward (sales returns, debit) with Returns Outward (purchase returns, credit).
- Passing a compound entry but posting only one leg.
- Assuming a tallied trial balance certifies the books are free of error.