The Basics in Accounting

  The first and the foremost thing that is required to pass an journal entry is sticking to the basic principals of accounting. Mear knowledge of it will not help one must learn to practice it and simultaneously learn to apply it.
Once asked any body will tell the basic principals of debit and credit but when it comes to applying them and passing a journal entry they fail to do it.
Hence for the ease of application I had read and learned from my teacher an different way of presenting the journal entries. Which I have summarized below:-

1. In case of an Asset :  One must Debit an increase in the value of asset and credit the decrease in the value. It is because of this principal that an asset is credited while passing an depreciation entry.
2. In case of a Liability: Debit  decrease in the account and credit  increase in the account. For example: in case of an introduction of capital two accounts will be affected and they are cash account and capital account, cash account is in the nature of asset and capital in the nature of Liability (by virtue of business entity concept), when cash is brought in the asset increases and capital increases hence by following the above rule increase in asset should be debited and increase in the value of liability should be credited, hence the entry will be cash a/c Dr. to capital a/c.
3. In case of Income/ gains: The rule is similar to the rule that is applied to liabilities i.e. credit increase and debit decrease.
4. In case of Expenses/ losses: The rule is similar to assets and hence the increase in expenses should be debited and decrease in expenses should be credited.

A few examples of what we have delt with so far:

• Entry for Outstanding expenses: Expenses A/c  Dr.

To Outstanding Expenses A/c
How: Expenses as explained in rule 4 should be debited if there is an increase and following the accrual system of accounting the outstanding expenses should be recogonized and hence the entry is made following the rules 2 and 4 as outstaning expenses are in the nature of Liabilities

• Entry for accrued incomes: Accrued Income A/c  Dr.

To Income A/c
How: Accrued income is income due but not received and hence it is in the nature of assets to be specific Current assets and hence rule 1 shall apply and Income will be as per rule 3.
You are free to ask and comment on it.
There still more to come on certain other important but basic issues.

By;Apoorv aggarwal