Accounting Knowledge

1. At first we will see, which accounts are affected by the transaction. For example “Purchased furniture for cash Rs. 50000. Two accounts are involved.  Furniture A/c  Cash A/c 2. Then we will see to which head these accounts belong. From the above example, both accounts are from the head “Assets”. 3. Then we will see, they have increased or decreased. From the above example: Furniture A/c has increased and cash A/c has decreased, that shows: One asset is increasing and the other is decreasing. 4. Then by applying rules of Debit and Credit, we will enter the transaction. Furniture A/c is increasing. When Asset increases it is debited (Dr.). As furniture is an asset so it will be debited. Cash A/c is decreasing. When asset decrease they are credited (Cr.) 1. Furniture A/c Cash A/c 2. Asset Asset 3. Increase Decrease 4. Debit Credit So entry will passed as Furniture A/c 50000 To Cash A/c 50000

Following are the head of accounts according to American approach: 1. Assets 2. Liabilities 3. Capital or owner’s equity 4. Revenues 5. Expenses 1. Assets Assets are of two types.  Fixed assets  Current assets Fixed assets: Such assets which give benefit to the business for more than one year and these are bought not for sale are called fixed assets. Examples:  Land  Building  Plant and machinery Plant is combination of different machines.  Furniture and fixture Furniture can be moved but fixture can not be moved.  Motor vehicle  Office equipment  Horses and carts.  Tools  Computer Current assets Such assets: • That are in the form of cash • That will give cash, converted into cash with in one year: and • That will be consumed within one year, are called current assets Examples  Cash in hand  Cash at bank  Debtor / Accounts receivable  Bills receivable  Stationery  Prepaid expenses  Incomes receivable