IGNOU PCO 1 2018 - What do you understand by principle of double entry? Give the rules of

Question

What do you understand by principle of double entry? Give the rules of debit and credit with suitable examples.

15 Feb 2018

Answer :

Word Count : 731

For every transaction there are two aspects. One is called Debit and the other is called Credit. The debit and credit aspects of a transaction are to be identified based on the principles of double entry system of accounting.

Debit refers to entering an amount on the left side of an account and Credit means to enter an amount on the right side of an account. The abbreviated form of Dr. Stands for Debit and Cr. Stands for Credit. Rules of debit and credit is based on dual aspect concept i.e. every transaction has Debit effect and an equivalent credit effect.

Before deciding which account is to be debited or credited, it is necessary to decide the nature of accounts which are influenced by the business transactions.

The rules of Debit and Credit are given below

Personal Accounts: (Natural Persons and Artificial Person)

Rule : Debit the Receiver

Credit the Giver

According to the above principle, the benefit receiver’s account is

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IGNOU Solved Assignments Assignments Ignou Projects Project Previous Year Solved Exam Papers Notes Notes Sample Question Papers Sample Question Papers

May 1	Purchased goods for cash	10,000
2	Purchase goods on credit from Ram Lal	6,55,000
5	Sold goods to Mahesh	50,000
8	Cash sales to Jayant	10,000
9	Returned goods to Ram Lal	15,000
11	Mahesh Returned goods	5,000
12	Purchased stationary	2,000
17	Rent Paid	5,000
21	Commission Received	10,000
23	Cash Received from Anil	2,000

	Dr. Rs.	Cr. Rs.
Purchases and Sales	375,000	4,20,000
Returns Inwards	15,000
Returns Outwards		10,000
Carriage	12,400
Wages and Salaries	52,600
Trade Expenses	2,200
Rent		12,000
Insurance	1700
Audit Fees	1,500
Debtors and Creditors	10,000	50100
B/R and B/P	3,300	2,200
Printing and Advertising	5,500
Commission		13000
Opening Stock	36,000
Cash in hand	18800
Cash in Bank	26,800
Bank Loan		20,000
Interest on Loan	1,500
Capital		2,50,000
Drawings	15,000
Fixed Assets	2,00,000
	777,300	7,77,300