carefully recorded in the Ledger Account.
Each ledger account has two identical parts
— debit side – on the left hand side and
— credit side – on the right hand side.
The basic rules about recording transactions are :
1. Debit the receiver and credit the giver.
2. Debit what comes in and credit what goes out.
3. Debit all expenses and losses and credit all incomes and gains.
The rules for writing up accounts of various types are as follows :
Assets : Increases on the left handside or the debit side and decreases on the credit side
or the right hand side.
Liabilities : Increases on the credit side and decreases on the debit side.
Capitals : The same as liabilities.
Expenses : Increases on the debit side and decreases on the credit side.
Incomes or gain : Increases on the credit side and decrease on the debit side.
The student should a clearly understand the nature of debit and credit.
A debit denotes :
(a) In the case of a person that he has received some benefit against which he has already
rendered some service or will render service in future. When a person becomes liable to
do something in favour of the firm, the fact is recorded by debiting that person’s account
: (relating to Personal Account)
(b) In case of goods or properties, that the value and the stock of such goods or properties
has increased, (relating to Real Acounts)
(c) In case of other accounts like losses or expenses, that the firm has incurred certain expenses
or has lost money. (relating to Nominal Account)
A credit denotes :
(a) In case of a person, that some benefit has been received from him, entitling him to claim
from the firm a return benefit in the form of cash or goods or service. When a person
becomes entitled to money or money’s worth for any reason. The fact is recorded by
crediting him (relating to Personal Account)
(b) In the case of goods or properties, that the stock and value of such goods or properties
has decreased. (relating to Real Acounts)
(c) In case of other accounts like interest or dividend or commission received, or discount
received, that the firm has made a gain (relating to Nominal Account)
Ledger Posting
As and when the transaction takes place, it is recorded in the journal in the form of journal
entry. This entry is posted again in the respective ledger accounts under double entry principle
from the journal. This is called ledger posting.
Balancing of an account
The difference between the debit side total and the credit side total is called balance.
If debit side total is greater than the credit side total of the same ledger account, the “balance”
is known as the debit balance.
If credit side total is greater than the debit side total of the same ledger account, the “balance”
is known as the credit balance.
A debit balance shows that :
(a) Money is owing to the firm (Personal Account)
(b) The firm owns property or goods. (Real Account)
(c) The firm has lost money or increased certain expense. (Nominal Account)
A debit balance is shown on the credit side as “By Balance carried down” or “By Balance c/
d”.
A credit balance shows that :
(a) Money is owing to some person (Personal Account)
(b) The firm has given up so much property. (Real Account)
(c) The firm has earned an income or gains. (Nominal Account)
A credit balance is shown on the debit side as “To Balance carried down” or “To Balance c/d”.
With reference to the previous illustration, let us show the ledger balancing at the end of the
month :
With reference to the previous illustration, let us show the ledger balancing at the end of the
month :
In the above cash account, the debit side total is Rs. 40,000 while the credit side total is NIL.
So, the debit side total is Rs. 40,000 more than the credit side total. This balance is placed on the
credit side as “By Balance c/d”. again the balance is brought down at the beginning of the next
accounting period as “To Balance b/d”.
In the above Capital Account, the credit side total is Rs. 40,000 and the debit side total is
NIL. So the credit side total is Rs. 40,000 more than the debit side total. This balance is placed
on the debit-side as “To Balance c/d”. again the balance is brought down at the beginning is
brought down at the beginning of the next accounting period as “By Balance b/d”.
Closing balance and Opening balance
The debit or credit balance of an account what we get at the end of the accounting period is
known as closing balance of that account.
The “balance of the nominal accounts” is closed by transferring to trading account and the
profit and loss account which shows the net operating results – net profit or net loss.
The “balance of the personal accounts and real accounts” representing assets, liabilities,
owners equity are reflected in the Balance sheet, which shows the financial position of a business
on a particular date. These balances are transported as opening balance in the succeeding
accounting period.
Some terms used :
Casting — totalling
Balancing — to find the difference between debit side total and credit side total of an account.
C/d - Carried down B/d - Brought down
C/o - Carried over B/o - Brought over
C/f - Carried forward B/f - Brought forward
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