Finance Basics

SINGLE ENTRY BOOK KEEPING AND DOUBLE ENTRY BOOK SINGLEKEEPING ENTRY

SINGLE ENTRY BOOK KEEPING • FORMAT FEATURES • It is simple • All transactions are recorded only once • No credit and debit side LIMITATIONS • It is not possible to understand the impact of various transactions in the business • Not possible to understand the expenses, income or profit quickly • Hence this system is not used for business

DOUBLE ENTRY BOOK KEEPING • Every transaction has two sides, one debit side and other credit side • Every transaction is entered two times, one on debit side and the other on credit side • Debit or Dr is recorded on left hand side and credit or Cr is recorded on right hand side • Every transaction of business is recorded on the same day as it takes place in a book called Journal • Journal is the Primary and Original Record of bookkeeping and prepared in chronological order. • (contd)

• From Journal, all transactions pertaining to one ‘Account’is entered in a book called “LEDGER” eg cash account ledger, rent account ledger etc • Ledger is the second record of book keeping. • The entries made in different Ledgers are checked by making a “ TRIAL BALANCE” • Financial Statements like “ Profit and Loss Statement”, “Balance Sheet” etc are prepared from Ledger

• Double Entry System of book keeping provides a clear picture of all transactions • It facilitates financial monitoring and control. • The process of entering the transaction in the Journal is called Journalizing and entering the transaction in the Ledger is called

TYPES OF ACCOUNTS

ITEMS AND RULE OF EACH TYPE

ITEMS AND RULE OF EACH TYPE

ITEMS AND RULE OF EACH TYPE

FORMAT OF JOURNAL WITH EXAMPLE • The sample formats for Journal and Ledger have been prepared for the following transactions. •

8/10/08 sold goods for Rs 4000/-

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9/10/08 paid salary of Rs 2000/-

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9/10/08 paid rent Rs 500/-

LEDGER-FORMAT WITH Eg (Cash a/c Ledger)