Double Entry Accounts

Double Entry Accounts:

“Did you go through the explanations of Basics of accounting? “ Asks Rahul to his brother.  “ Yes , I spent some time in recollecting the process of accounting”  said his brother.  “Now I want to know about putting all these transactions in correct accounts. How do I identify the accounts and how do I put those all these in ledger? “.

Rahul says, “  Fine I will first tell you about the classification of accounts and how to identify the accounts from a transaction and then place it in the right place. After  that I will give you a small puzzle or a game to work on . You should give me the to it answers.

Let me start with the first thing. What do you know about asset and liabilities?

In accounts the first thing that you should know is about the Assets and liabilities. So how do you identify what are assets and liabilities?

Rahul gives a simple explanation on this - “ What happens with most of the people is .. you think of going out, work hard, get good job and save some money. You also might have thought about  having the boy or girl of your dream and you might move and live in together. You decide to live together and think of buying  a house , buying vehicle and then having some cash in the bank for your basic requirements.  All these are assets. A valuable item that is owned by you is called as an asset(what you own).

After some period of time then you think about how long you will be working and where the money has actually gone? Loan amount payable, payment to be made for the goods supplied on credit, overdraft raised by a business man in bank, salaries payable,  etc are the examples of liabilities. It is an obligation to pay money to another party called as liabilities(what you owe).

Now I will give you a small test to identify the assets and liabilities. Identify whether  this is an asset or liability?                       

 Building is an asset

               Credit card is a liability

Cash is an Asset

Loan is a liability

Jewellery is a asset

 Overdraft is a liability

Debt is a liability

  

Good now you are able to identify the assets and liabilities.

Now let me tell you about debit and credit. What do you know about debit and credit.

To know  more about debit and credit you should know about the three golden principles of accounts. That is

Personal Accounts-Accounts of persons/artificial personal accounts/representative personal accounts- Debit the receiver; credit the giver

Real Accounts-May be tangible or intangible- Tangible means which can be touched and felt. Intangible  means – which cannot be seen but felt-

Debit what comes in; credit what goes out

Nominal Accounts- Related to salary/rent/ interest earned/ profit or loss

Debit all expenses and loses; credit all incomes and gains