ACCOUNTIN

G
MECHANICS
PUTTU GURU PRASAD
ACADEMIC COORDINATOR
INC - GUNTUR
Double entry system of financial
accounting
Earlier , organizations used to
maintain accounts in the single
entry system which recognized only
cash transactions.
But now the accounts are invariably
maintained in the double entry
system.
Accounts are maintained on
Accrual Basis under this system
Double entry system of financial
accounting
A cost incurred (i.e. ACCRUED) is
duly accounted for irrespective of
whether it is paid or not during the
period.
 In additions, all transactions are
supposed to have dual aspects – a
Debit aspect and a Credit aspect.
Since the system records both the
debit and the credit aspects of a
transaction, it is know as Double
Entry System.
Double entry system of financial
accounting
For income tax purposes, persons
carrying on business, should get
their accounts audited by an
accountant if the total sales,
turnover, or gross receipts exceed
Rs. 40 lakhs in a year.
A person carrying on professions is
also required to get his accounts
audited if his gross receipts exceed
Rs. 10 lakhs during a year.
 Nature of accounts
 Accounts are broadly classified into two
heads:
 1. Personal accounts. These are the
accounts of individuals, body of persons
and Representative personnel accounts
with whom a trader deals.

 Examples would be: Mohan, Ashok,

Rama Bros, Delhi cloth mills,
Chelmsford club, Bank of Baroda,
Capital and Drawings, salaries
outstanding .etc
 Nature of accounts
2. Impersonal accounts. These
are those accounts which do not
affect particular person, but affect
business in general, such as
machinery, furniture , cash, rent,
salaries, etc
Impersonal accounts are further
subdivided into two classes:
A – Real accounts
B – Nominal accounts
 Nature of accounts
 A. REAL ACCOUNTS – these are the
accounts of property or possessions
i.e. accounts relating to tangible things
such as cash, stock-in-hand, plant and
machinery, investments, buildings. Etc.

 B. NOMINAL ACCOUNTS – these are

the accounts relating to gains, incomes,
expenses or losses, e.g. discount,
commission, exchange, rent, salary,
conveyance, entertainment,
advertisement, stationery consumed,
brokerage. Etc.
RULES OF DEBIT AND CREDIT
Personal Debit , the receiver
accounts Credit , the giver

Real Debit , what comes in

accounts Credit , what goes out

Nominal Debit ,all expenses and losses

accounts Credit, all incomes and gains
RULES OF DEBIT AND CREDIT
 For example, when cash is
received from Mr. Gopal, it
affects Gopal, which is a
personal account, and cash
which is a real account.
A transaction has two aspects
and may affect any of the above
mentioned two accounts.
 DEBIT - CREDIT
There are two aspects in any
transaction
One : In coming Benefit or
Receiving Benefit is called Debit
Two : Out going Benefit or Giving
Benefit is called Credit
 JOURNAL
 Journal – this is the basic book of
original entry. All transaction are
recorded in chronological order as and
when they take place. The recording of
transactions in the journal is called
journalizing.
 A journal provides a chronological
record of all the transactions with details
of the accounts debited and credited
and the amount of each transaction.
 A separate entry has to be recorded for
each transaction and it has to be
analyzed to determine which account is
to be debited and which account is to be
credited
 The format of journal
DATE Particulars LF Debit Credit
(Rs) (Rs)

Narration – after each entry, a brief

explanation of each transaction called
“Narration” is given in the particulars’ column.
Ledger folio – in LF column , the page
number of the ledger where the transaction is
posted is given
THANK YOU
PUTTU GURU PRASAD
ACADEMIC COORDINATOR
INC - GUNTUR