Prepared by: Bhushan Thakur, Veer Wajekar College Phunde DOUBLE-ENTRY SYSTEM Prepared by: Bhushan Thakur, Veer Wajekar College Phunde

DOUBLE-ENTRY SYSTEM Assets Liabilities Equity In a double-entry system, equal debits and credits are made in the accounts for each transaction. Thus, the total debits will always equal the total credits and the accounting equation will always stay in balance. Assets Liabilities Equity

Golden Rules of Accounts Personal Account: Debit the receiver & Credit the giver Real Account: Debit what comes in & Credit what goes out Nominal Account: Debit all expenses and losses Credit all Income and Gains

NORMAL BALANCES — ASSETS AND LIABILITIES Increase Decrease Debit Credit Decrease Increase Debit Credit Liabilities Normal Balance Normal Balance

ILLUSTRATION 2-4 NORMAL BALANCE — OWNER’S CAPITAL Decrease Increase Debit Credit Normal Balance

NORMAL BALANCES — REVENUES AND EXPENSES Increase Decrease Debit Credit Expenses Revenues Decrease Increase Debit Credit Normal Balance Normal Balance

NORMAL BALANCES — REVENUES AND EXPENSES Decrease Increase Debit Credit Increase Decrease Debit Credit Expenses Normal Balance Normal Balance

EXPANDED BASIC EQUATION AND DEBIT/CREDIT RULES AND EFFECTS Assets Liabilities Owner’s Equity = + Assets Dr. Cr. + - Liabilities Dr. Cr. - + Dr. Cr. Owner’s Capital - + Dr. Cr. Owner’s Drawings = + - + - Dr. Cr. Revenues - + Dr. Cr. Expenses + - + -

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