Question

Explain the double entry mechanism with an illustrative example.

Answer 1

As per the double entry system of accounting every transaction has two aspects debit and credit.

Hence the double entry accounting system states that or every debit there is an equal amount of credit.

Thus the ledger account always shows the debit on one side and the credit on the other side to abide by the dual aspect concept

The three golden rules of accounting must be known in passing an entry:

1. Personal Account- Debit the receiver/Credit giver

2. Real Account- Debit what comes in/Credit what goes out

3. Nominal Accounts- Debit the expenses/Losses/Credit the income gain

IIIusstrative example: Mr. Shham commenced business with cash Rs. 200000 and building Rs. 150000.

Analysis: In the above transaction in-hand cash comes in Rs. 200000 and building comes in Rs. 150000.

On the other hand liability to be paid to the proprietor i.e. capital increase is Rs. 350000.

Journal Entry in the books of Shyam

Particulars	Debit	Credit
Cash A/c  ......Dr.	2000000
Building A/c  ......Dr.	150000
To Capital A/c		350000
(Being business commenced)