Source Documents: Written evidence of a transaction (Cash Memo, Invoice, Cheque, Pay-in-slip). No entry without source document.
Accounting Vouchers: Format showing which account to debit/credit. Types: Cash (receipt/payment), Non-Cash/Transfer (credit), Debit (expense), Credit (income), Transaction (one debit one credit), Complex/Journal (multiple debits/credits).
ACCOUNTING EQUATION
Formula: Assets = Liabilities + Capital.
Also: Assets – Liabilities = Capital; Assets – Capital = Liabilities.
Always remains balanced. Example: Started business with ₹5,00,000 cash → Assets (Cash) ₹5,00,000 = Liabilities 0 + Capital ₹5,00,000.
RULES OF DEBIT & CREDIT (MODERN APPROACH)
| Account Type | Debit | Credit |
|---|---|---|
| Assets | Increase (+) | Decrease (–) |
| Liabilities | Decrease (–) | Increase (+) |
| Capital | Decrease (–) | Increase (+) |
| Expenses/Losses | Increase (+) | Decrease (–) |
| Revenues/Gains | Decrease (–) | Increase (+) |
JOURNAL – BOOK OF ORIGINAL ENTRY
Format: Date | Particulars | L.F. | Debit (₹) | Credit (₹). Narration below entry.
Simple Entry: Cash A/c Dr. 1,50,000; To Capital A/c 1,50,000 (Business started).
Compound Entry: Plant & Machinery A/c Dr. 1,25,000; To Cash A/c 10,000; To Creditor A/c 1,15,000 (Bought plant, part cash part credit).
SPECIAL JOURNALS (SUBSIDIARY BOOKS)
Cash Book: Cash receipts & payments.
Purchases Book: Credit purchases of goods.
Sales Book: Credit sales of goods.
Purchase Returns Book: Goods returned to suppliers.
Sales Returns Book: Goods returned by customers.
Bills Receivable/Payable Books.
Journal Proper: Transactions not recorded elsewhere (opening/closing/adjusting/rectification entries).
LEDGER – PRINCIPAL BOOK
Meaning: Book where all accounts are maintained. Each account on separate page. Shows net effect on each account.
Posting: Transferring entries from journal to ledger. Debit side of account gets debits; credit side gets credits.
Balancing: Difference between two sides. Debit balance if Dr. side > Cr. side; Credit balance if Cr. side > Dr. side. Balance c/d (carried down) and b/d (brought down).
DISTINCTION: JOURNAL vs LEDGER
| Journal | Ledger |
|---|---|
| Book of Original Entry | Principal Book (Second Entry) |
| Chronological order | Analytical order (account-wise) |
| Process: Journalising | Process: Posting |
| Greater legal evidence | Lesser legal evidence |
| Not balanced daily | Balanced periodically |
ACCOUNTING UNDER GST
Intra-state (CGST + SGST): Purchases A/c Dr., Input CGST Dr., Input SGST Dr.; To Creditor A/c.
Inter-state (IGST): Purchases A/c Dr., Input IGST Dr.; To Bank/Creditor A/c.
Set-off Rules: IGST first set off against IGST, then CGST, then SGST. CGST against CGST & IGST. SGST against SGST & IGST.
IMPORTANT EXAM QUESTIONS
1. What are source documents? Give two examples (2 marks).
2. Prove accounting equation using transactions (3 marks).
3. State rules of debit & credit for: Increase in asset, decrease in liability, increase in capital, increase in expense (2 marks).
4. Journalise given transactions (4-6 marks).
5. List any four subsidiary books and their purpose (3 marks).
6. Distinguish between Journal and Ledger (2-6 marks).
7. Explain posting and balancing procedure with example (4 marks).
8. Pass journal entries under GST for given transactions (6 marks).
9. If capital ₹2,00,000 and liabilities ₹50,000, find total assets. (Assets = ₹2,50,000).