CHAPTER6

Accounting Procedures
Rules of Debit and Credit
LEARNING OBJECTIVES
This chapter would enable students to understand:
Meaning of an Account
Meaning of Debit and Credit
Rules of Debit and Credit
Classification of Accounts
Balancing an Account
Significance of Debit and Credit Balance in Accounts

Transactions are recorded in the books of account on the basis of evidences, i.e., source
documents, such as invoices for purchases, invoices for sales, debit and credit notes,
etc. Rules of debit and credit are applied to each transaction and recorded in the book
of original entry, i.e., Journal or Special Purpose Books in a chronological order. The
transactions recorded in the books of account are transferred (posted) to the specific
account maintained in the Ledger. At this stage, it is appropriate to define and
understand the term 'account'.
ACCOUNT

ACCOunt is a record of transactions under a particular head. It records not only the
amount of transactions but also their effect and directio.
An account is divided into two parts, i.e., debit and credit. It is usually in a "T form
aud the commonly used layout of an account is as follows:

Dr. NAME OF THE ACCOUNT, e.g.,

WAGES ACCOUNT

Date Amount () Date Particulars Amount

Particulars J.F
Date of Amount of | Dat f Name of the Page or Amount of
the Name of the Page or
the other account Reference
other account Reference the the
transaction Number of transaction transaction Number of transaction
theSubsidiary theSubsidiary
Book, Book
where where
the entry
the entry
was frst
was first
recorded,
recorded,
eg, Cash
eg, Cash
Book
Book
 Double t n u y Doon N e e p i n g

6.2
should be
noted:
ping-CBSE Procedures-Rules of Debit and Credit
A c c o u n t i n gP r o c e d u r e s - R u l e s

6.3
layout of account
Follo points about the Double Entry or Kules of Debit and Credit are
Rules of.
account is written
at the top.
li ach of the business transactions. There formed on the basis of these
Name of the halves, separated
by a thick vertical
line aspec n the debit side two
is divided into two identical
abbreviated a s Dr..
of account
and
are two
approaches for
when to write on the credit side deciding
when
Acount to Wrh of
debit side ('debit'is account is to be debited and which account is to an account,
hand side is called the a b b r e v i a t e d as 'Cr.).
i.e s of be credited. The rules on
Left
credit side (credit'is which such decision is taken are called
of wh
basis

Right hand side is called

the
'Date.
the Rules of Debit and Credit.
column for
transaction is entered in the CLASSIFICATION OF ACCoUNTS
Date
of the other account volved in the trar
in the transactio
'Particulars'column, the
name of the Accounts can be classified in two ways:
In the
is entered.
column is used as a reterencing system wher.
e th A. Classification; and
Traditional

The folio' or Journal Folio (J.F) Journal Book.

B. Modern Classification.
was recorded in
the A. Traditional Classification
ornginal entry
the amount transacted is written.
In the last column,
amounts:
TInder this classification, accounts are classified into two groups as shown below:
It is illustrated below by taking imaginary Traditional Classification of Accounts
CASH ACCOUNT
Dr. .F
Date Increase
Date Decrease
2021 Personal Accounts
2021 Impersonal Accounts
April 2 Paymentsfor Purchases
April 1 Opening Balance 1,00,000
56,00
April 3 Cash Sales of Goods 50,000| April 4 Payments to Creditors 20,0
70,000 April 7 Wages and Salaries
April 10 Receipts from Debtors Rent
16.0 Natural Personal Artificial Personal Representative Real Nominal
April 14 Receipts from Commission 20,000 April 28 10,00 Accounts Accounts Personal AcCcounts Accounts Accounts
April 21 Sale of Fixed Assets 30,000 April 29 Postage 2,00 Personal Accounts
April 27 Commission 5,000 April 29 Cartage 100 1. Personal Accounts
1,050 Accounts which relate to persons, i.e., individuals, firms, companies, debtors or
April 30 Closing Balance 1,700 creditors, etc., are Personal Accounts. Examples of Personal Accounts are the account
275,000 2.75.0 of Ram & Co., a customer (Debtor), or the account of Jhaveri & Co., a supplier of

What has been done is place the increases in cash on the left hand side (i.e., Receipt goods (Creditor), Capital Account and Drawings Account of the proprietor. The main
side or Debit side) and the decreases on the right hand side (i.e., Payments side a purpose of preparing a Personal Account is to determine the balance due to or due
Credit side). The closing balance is ascertained by deducting the total of payments from persons or organisations.

1,05,000 from the total of the left hand side, 7 2,75,000. Personal Accounts can be classified into three categories:
() Natural Personal Accounts
MEANING OF DEBIT AND CREDIT The term Natural Persons' means persons who are creations of God. Therefore, these
will include accounts in individual name. For example, Ram's Account, Asha's Account, ete.
Debit refers to the left side of an account and credit refers to the an
right side of accoun i) Artificial Personal Accounts
In the abbreviated form Dr. stands for debit and Cr. stands for credit. An item recordd These accounts include accounts of corporate bodies or institutions which are recognised
on the debit side of an account is said to be debited to the account. An item recorde as in business
persons For example, the account of a limited company, the account
dealings.
on the credit side of an account is said to be credited to the account. of a club or a cooperative society, ete.

Both debit and credit may represent either increase or decrease depending upon tn (i) Representative Personal Accounts
of persons. For example,
nature of an account. The rules and credit depend on the nature of
of debit accoun These are accounts which represent a certain person or a group
Outstanding Rent Account will be opened in the books.
iI rent is due to the landlord, an
the amount of rent payable to the landlord.
RULES OF DEBIT AND CREDIT ne Outstanding Rent Account represents Personal Accounts are Prepaid Rent Account,
Other examples of the Representative
Under Double Entry System of accounting each transaction has two aspects. One aspect Accrued Commission Account, Unearned lInterest Account, etc.
debit, Le, receiving orincoming aspect. Another aspect is credit, ie., giving or outgoi the receiver, Credit the giver.
aspect. Debit and credit aspects ofa transaction form the basis of Double Entry oo
stem Rule of Debit and Credit-Debit
 Double Enty book Keeping

6.4
Reeping-CBSE Acco
ntingProcedures Rules of Debit and Credit 6.5

Solution:
2. Impersonal Accounts Acco
Cash
Account,
unt, Personal Accounts
Real Accounts
which are not
personal such
Accounts.
as
Machinery
These c a n ther suh.
be further sub-divide Re (i) Bank 0) Caoh
Nominal Accounts
(M Sales
Accounts Impersonal (i) Outstanding Salaries
Account, ete., are
termed as
(o) Leasehold Property (vi) Discount Recelved
into two accounts:
(v) Accrued Interest
oil) Plant and Machinery (i) Bad Debts Written off

or intangible assets of t
(vil) Drawings cvil) Goodwill () Purchases
() Real Accounts
which relate to
tangible the fi (xil) Capital Cxd) Bad Debts Recovered
Real Accounts are the accounts building, investmente
assets are: land, (xv) Bank Overdraft

(excluding debtors). Examples

oftangible le assets are: assets Cxiv) Interest (Paid)

and stock or cash in

machinery,
hand. Examples of
intangible goodwil Crvi) PrepaldRent ovi) Carriage Inwards
two or more accounts. After ascertaining the accounts
patents and trademarks.
Each transaction involves
what goes out, involved, it is decided which account is to be debited and which account is to becredited
comes in, Credit n
Credit-Debit what
Rule of Debit and
Ilustration 2.
Accounts
(i) Nominal (Revenue or Expense) the nature of account (Personal, Real or Nominal) and show which will be debited
losses, gains, revenue, ete.,
are termed as Nomi.
ina SState
Accounts which relate to expenses,
Account, Interest Paid Account. s and which will be credited:
Accounts. These are Salary Account,
Purchases
the Nominal Acco
Sales ) Rent received (vi) Interest received
Account. The net result of all
Account and Commission Received
to the Capital Account,
counts (it) Machinery purchased (vi) Building sold
is profit or loss which is transferred
(ii) Goods purchased (vii Discount allowed
and losses, Credit all incomes and gains,
Rule of Debit and Credit-Debit all expenses (iv) Capital introduced (ix) Goods sold
is added to a Nominal Account () Rent paid
Ifa prefix or suffix (Outstanding, Prepaid Accrued) or
int
becomes a Personal Account. The table given below explains the above: Solution:
it Debited/Credited
Personal Account Accounts Nature of Accounts
Nominal Account
Outstanding Interest A/c, Interest Received in Advance A/c, Prepaid Interest A/c (0) Rent Received A/c Nominal Credited
Interest A/c
ui) Machinery A/c Real Debited
2. Rent A/c
Outstanding Rent A/c.PrepaidRent A/c Uin Purchases A/c Nominal Debited
3. salary AC Outstanding Salaries A/c, Prepaid Salaries ANc v) Capital A/c Personal Credited
() Rent Paid A/c Nominal Debited
4. Commission A/c Outstanding Commission NG Prepaid Commission A/c
(Vi) Interest Received Ac Nominal Credited
(il) Building A/c Real Credited
Rules of Debitand Credit (Traditional Classification) at a Glance (vil) Discount Allowed AWc Nominal Debited
Types of Account Account to be Debited Account to be Credited (ix) Sales Ac Nominal Credited
Personal Account Recelver Giver
2 Real Account Ilustration 3.
What comes in What goes out
3. Nominal Account From the following transactions, state the nature of accounts and state which account
Expense and Loss Income and Gain will be debited and which account will be credited:
Illustration 1. 1. Mohan started business with cash 5,00,000
Classify the following accounts into Personal, Real and Nominal Accounts: 2. Purchased goods for cash 1,00,000
() Cash (vii) Drawings 3. Sold goods for cash 1,50,000
(i) Bank (xii) Capital 500
(vii) Discount Received 4. Received interest from Ram in cash
(iin) Outstanding Salaries (xciv) Interest (Paid) 60,000
(ix) Bad Debts Written off 5. Sold goods to Ashok
(io) Sales
x) Purchases
(xo) Bank Overdraft 50,000
() Accrued Interest Cxvi) Prepaid Rent 6. Purchased furniture for cash
(xi) Bad Debts Recovered 7. Paid wages 20,000
(ui) Leasehold Property (xvii) Carriage Inwards
(xii) Plant and
Machinery (xuiin Goodwill
 s Or
A c c o u n t i n 9 P r o l e

Debit and Credit 6.7

ANALYSIS OFTRANSACTIONS

6.6 Nature of
Debit
Credit Reason 5. Expense Accounts

S o l u t i o n
Accounts

Involved
Account
Comes in
e are the accounts of
expenses or los8es incurred in carrying the business
5,00,000 mples are: Purchases, Wages, salaries,
Deprecintion, Discount allowed and Rent, etc.
Transactions

Cash
Real 5,00,000 Giver
Personal
M o h a ns t a r t e db u s i n e s s
Capital
1,00,000 Expenses Rule of Debit and Credit-Debit the increases and Credit the
incash Purchases
Nominal
1,00,000G0esout decreases.
lns for Debit and Credit (Modern Classification) at a
500000
with for cash Real
Purchased
goods Cash 1,50,000 Comes in Glance
2
Cash Real 1,50,000 Income Types of Account
100.000 1,50,000 Accounts to be Debited Accounts to be Credited
forcash &
Nominal

3
Soldgoods Sales 500 Comes in 1 . Asset Accounts
Real Increase Decrease
Cash 500 Income
interest from
Ram in Nominal 2. Liability Accounts
Decrease Increase
Received
cash 500.
Interest
60,000 Recelver
Ashok Personal 60,000 Income 3. Capital Accounts
Decrease Increase
Ashok for 60,000. Nominal
Sold goods to Sales 4. Revenue Accounts
S
50,000 Comes in Decrease increase

Furniture Real 50,000 Goes out 5. Expense Accounts

6 Purchased furniture for
cash
Real Increase Decrease
50,000.
Cash 20,000 Expenses that an increase in assets is favourable to the firm but an increase
Wages
Nominal
20,000 Goes out It should be noted
7 Paid wages T20,000. Real in expenses may not be so, even though in both the cases, inerease will be recorded
Cash
on the debit side. Similarly, increase in liabilities is, of course, not favourable but an
B. Modern Classification five categori
increase in revenue is favourable. Nonetheless, both will be recorded on the credit side.
classified into the following ries Thus, the terms 'debit' and 'credit' should not be taken to mean respectively favourable
all the accounts are
Under this classification, and unfavourable-they merely describe the two sides of an account. In other words,
Accounts
Modern Classification of
both debit and credit may represent either increase or decrease depending upon the
account.
nature of a n
Revenue Accounts Expense Accounts follows:
Liability Accounts
Capital Accounts
Another way to understand the rules of debit and credit is as
Asset Accounts
Rules of Debit and Credit
I. Asset Accounts Assets=Liabilities+ Capital + Profits-Losses
to the economic resources of an
are those accounts which relate (2)Liabilities
Asset accounts and Machinery, Furniture, Patents (1) Assets
Land and Building, Plant
enterprise such as
Debit Credit Debit Credit
Bank and Cash, etc. Increase (+)
Inventory, Increase (+) Decrease ( Decrease (-
decreases.
increases and Credit the
Rule of Debit and Credit-Debit the (3) Capital
Debit Credit
2. Liability Accounts Decrease ( Increase (+)

Liability accounts are accounts of lenders,

creditors for goods, outstanding expenses, etc. (4) Expense (Loss) (5) Revenue
Debit Credit
and Credit the increases. Debit Credit
Rule of Debit and Credit-Debit the decreases Decrease- Decrease
Increase (+)
Increase (+)
decrease in various
3. Capital Accounts the following Illustrations and observe how increase and
Study
have invested amount in the
These are the accounts of proprietors/partners who accounts are debited and credited.
business.It includes both Capital and Drawings Account. Illustration 4.
mention the
accounts be recorded? Also,
Rule of Debit and Credit--Debit the decreases and Credit the increases. On which side will the increase in following
Modern Classification of Accounts:
of
nature of the account on the basis
4. Revenue Accounts (i) Creditor's Alc (iin Abhishek (Proprietor)
) Buildings A/c (Ui) Cash Alc
Inwards Alc
These are acountscommission
ofincomes and gains. Examples are: Sales, Discount receiveu (iv) Purchases Alc () Carriage
nterest received, received, bad debts recovered, etc. A/e (vii) Interest Payable
A/e (ix) Bills Payable A/c
(vii) Rent Received
Bills Receivable Ac
Rule of Debit and Credit-Debit the decreases and Credit the increases. (xi) Accrued Commission A/c (xii)
() Debtors Alc
 DEOit and Credit
ACOunting
Procedul

6.8 Double Entry Book Keeping--CBSE X llustration6,

6.9
llowing trans
Solution: Analyset h e
nsactions, state the
(it) Credit-Capital
ill b
accountwill be debited
e,
which account nature of
credited:accounts
0 DebitAsset (i) Credit--Liability will be and ich
(Ui) Debit-Asset
started siness with cash sua
iv) Debit-Expense () Debit-Expense I A n u j

ited cash into bankk for

(vin Credit Revenue (vii) Credit-Liability (ix) Credit--Liability 2Deposited

Withdrew cash for personal use

opening an account 1,00,000
(c) Debit-Asset (ri) Debit-Asset (xzi) Debit-Asset
50,000
Illustration 5. Withdrew cash from bank for office 5,000
use
Analyse the following transactions, state the nature of accounts and state which cheque from debtor 10,000
account will be debited and which account will be credited on the basis of Modern
5 Received. a
Shyam
6 Deposit
ed Shyam's cheque next day. 5,000
Classification of Accounts:
Ato a creditor Mahesh by cheque
1. Dinesh started business with cash 5,00,000 7 Pa
to staff 10,000
2. Borrowed from Naresh 1,00,000 Paid salary
8 20,000
3. Purchased furniture for cash from Raj Furniture House 20,000 cheque
Paid rent by
4. Purchased furniture from Delhi Safe 9 6,000
40,000 i n t e r e s t on loan

5. Purchased goods for cash 15,000 10. Paid 5,000

6. Purchased goods from Mahesh 30,000 Solution:

7. Sold goods for cash to Karim 25,000 ANALYSIS OF TRANSACTIONS

8. Sold goods to Shyam on credit 30,000 TransactionsS
Accounts Nature of How Debit Credit
9. Cash received from Shyam 20,000 Involved Account Affected
10. Cash paid to Mahesh 10,000 business Cash
1. Anuj started Asset Increased 1,00,000
Solution: ANALYSIS OF TRANSACTIONS with cash 1,00,000. Capital Capital Increased 1,00,000
Transactions Accounts Nature of How Debit Credit
Deposited cash into bank Bank Asset Increased 50,000
2
Involved Account Affected
50,000 for opening an
1. Dinesh started business Cash Asset Increased 5,00,000 Cash Asset Decreased 50,000
account
with cash 5,00,000. Capital Capital Increased 5,00,000
2. Borrowed from Naresh 3. Withdrew cash for Drawings Capital Decreased 5,000
Cash Asset Increased 1,00,000 Asset Decreased 5,000
1,00,000. Loanfrom Naresh Liability Increased 1,00,000
personal use 5,000. Cash
3. Purchased furniture for Furniture Asset Increased 20,000 4. Withdrew cash from bank| Cash Asset Increased 10,000
20,000 in cash from Asset Decreased 10,000
Cash Asset Decreased 20,000 for office use 10,000. Bank
Raj Furniture House. 5,000
5. Received a cheque from Cash/Cheques in Hand Asset Increased
4. Purchased funiture from Furniture Asset Increased 40,000 Decreased 5,000
debtorShyam 75,000. Asset
Delhi Safe for R40,000. Delhi Safe Liability increased 40,000 Shyam
Increased 5,000
6 Deposited Shyam's Bank Asset
Purchased goods for Purchases Expense Increased 15,000 5,000
cashR 15,000. Decreased 15,000 Cash/Cheques in Hand Asset Decreased
Cash Asset cheque next day.
6. Purchased goods from Purchases Expense Increased 30,000 Liability Decreased 10,000
7. Paid to a creditor Mahesh Mahesh 10,000
Mahesh 30,000 Mahesh Liability Increased 30,000 Asset Decreased
bycheque R10,000 Bank
7. Sold goods for cash Cash Asset Increased 25,000 20,000
Expense Increased
to Karim R25,000. Sales Revenue Increased 25,000 8. Paid salary to staff Salary Decreased 20,000
Asset
8. Sold goods to Shyam Shyam Asset Increased 30,000 20,000. Cash
6,000
Increased
on credit 30,000 Sales Revenue Increased 30,000 9. Paid rent Expense 6,000
by cheque Rent Asset
Decreased
9. Cash received from Cash Asset Increased 20,000 T6.000. Bank
Asset Decreased 20,000 Increased 5,000
Shyam20,000. Shyam Expense
Mahesh Mahesh Liability Decreased 10,000
10. Paid interest on loan Interest Decreased 5,000
10. Cash paid to
Decreased 10,000 5,000. Cash
Asset
10,000. Cash Asset
 HUes
Double Entry Book Keeping--CBSE
AccOuntngPocedu
0ur oroeoit and
6.10 Credit

BALANCING AN ACCOUNT
IGNIFICANCEOF DEBIT AND
6.11

CREDIT
BALANCEININ ACCOUNTS
show debit balances
At the end of a period (say a day, month or a year), it may be necessary to know t h
Some accounts sho
and some ACCOUNTS
Dalance in an account. A balance of an account is the difference betiween the total of it, a sf o l l o w s :
credit balances.
balance in the
These balances are
debit and credit sides. If the total of debit side is more than the total of credit side, th. tal
1.Credit Account means
other wwords, the amount
In other

invested inamount
business.
account is said to have a debit balance. It has a credit balance when total of credit side due to the the
Bank Loan the business by theowne
Account, Suppliers unt,
2 Credit

Account etc., ownetamount

is more than the total of debit side.
payablebythe business, i.e.,
The process of balancing is as follows: Cash
balance in Ca liability of the
business.
means
3. Debit Account, Bank Account,
( Total the two sides (i.e., Debit and Credit) of the account. Hand, Cash Bank, and amount Debtor's Accoun
unt, means Cash in
G) Caleulate the difference in totals of the two sides. The difference is the balance halance
edit balance in Discount receivable against sale respectively.
Received Account,
income earned by the
business. Interest Received Account,
(i) Enter the difference in the side with shorter total. Now the total of two sides etc
will match. Debit
balance in
Discount
D Allowed Account, Salary Account, Rent
If credit side is shorter, then the amount is entered on the credit side by Paid Account, etc., means expenses incurred by the Account, Interest
writing briefly say that:
business.
we can
By Balance cid in the Particulars column. It is carried forward by writing in the debit So,
side To Balance b/d, it being a debit balance. (o)A
dchit balance 1s either an asset (cash,
etc); and
bank, etc.) or an expense (salary, rent,
If debit side is shorter, then the amount is entered on the debit side
by writing
(6)4 credit balance
A shows the income
To Balance cld in the Particulars column. It is carried forward earned or
liability or the amount invested by
on theby writing credit the proprietor.
side 'By Balance b/d, it being a credit balance.
Ralancing an account 1s necessary to ascertain the net effect of all transactions
As an illustration,
following account is given with imaginary amounts: to that account durnng a given period. posted
Dr
RANJANS ACcOUNT Cr. llustration7.
Date Particulars Date Particulars
Prepare a T shape account of furniture and enter the following transactions:
2021 2021
April 5 7o Cash ANC 10.000 Apri 7 By Purchases A/c
April 20 To Returms Outward Alc 40,000
1500 1. Furniture purchased 50,000 2. Furniture sold-costing 10,000
April 27 To BankAc
April 30 To Balance cdid 20500 3. Furniture purchased 15,000 4. Old furniture discarded 5,000
500 5. Depreciation on furniture 3,000
40,500 40,000
Solution:
May 1 By Balance b/d 8,500 Furniture is an Asset Account, an increase in the amount of furniture is recorded on
The account shows that the firm has a liability towards Ranjan for 7 8,500. the debit side, while a decrease on the credit side.

Itis to be noted that Revenue and Expense Accounts are not balanced, they are totalled FURNITURE ACCOUNT
and closed by transferring them to Trading or Profit and Lo88 aease (+) Decreasel-
Liability and Capital Accounts are Account. Balances in Asset, Cash-Furniture Purchased 50,000 2 Cash-Sale of Funiture 10,000
transferred to the Balance Sheet. 2 Cash-Furniture Purchased 15,000 4. Furniture Discarded 5,000
In other words, at the end of the year all the Nominal Accounts are closed 5. Depreciation on Furniture 3,000
their balances to Trading or Profit and Loss Account. The by transferring 6. Balance 47000
Personal and Real Accounts 65,000 65,.000
are balanced and their balances are carried
forward to next year.
decrease in the book value of fixed assets
Balancing of accounts is also discussed in the chapter on Ledger. preciation is a permanent and continuous
ue to use, effluxion of time, obsolescence, etc.
 6.12 Doubie Entry Bok feping-Cea pdutes-Rules of Debit andCredit
lastration 10,
llastration 8. 6.13
tolowing
trar
dione in
Open a T shape crount of a creditor, Mohan, and
write the following tr
transactio the
Setut's
05560 haount
2 Sid,Cqode
rolitor's Nerut and Cash Acenunt
rite

on the pruper side L C a s hs a l e s

unt
Cash recerved from
1. Purchased gonde from Mohan on credit
50000 P 56509 4.1 to Xon
2405M06. Cash ed goda tromeredit
2. Paid to Mohan
30000 Paid
to

Yon
porehases from Y credit
5
3. Goods returned to Mohan 44,069
3,000
Solution:

16,500
4. Again purchased gooda from Mohan on credit
10.000 Pardculars
AH ACCOANt
Solution: Priculars
Mohan's Acount (Creditoe) ia a Liability Account, an increase is recorded on the credis 1
Sales

X D e b t o r )
S0660S. YCcedto
6,5050 6. Purchases
side while a decrease is recorded on the debit side.
1660
MOHANS ICREDITOR ACCOUNT 1506.56 Balance 60,000
Decease incease 4) 5 1DEBTOR) KCOUNST
2 Cash Pai 1. Purchass
30,000 50006
Particulars

Particulars
Gonds Retumed Retuns Outward 3.000 4. Parchases
10,00 Sales 80000
8alance 3. Cah Received
27000 $6550
60000 alance
60,00 0.000 248500
80,000
llustration 9. YS (CREDITOR ACCOUNT
Write up a
Tshape Account of Gaurav, a debtor, from the following transactions Particulars Particulars
5, Cash Paid 30,000 4, Purchases
44,000
1. Goods sold to Gaurav Balanice
14,000
2. 80,000 44,000 44,000
Cash received from Gaurav
3. 30,000 llustration 11.
Discount allowed to Gaurav
2,000 From the following particulars, prepare the acount of Devender, the proprietor of a
4. Goods sold for Cash to Gaurav business:
5. 10,000
Cheque received from Gaurav ) Capital introduced 30,000
6. Sales Return by Gaurav 20,000 Gi) Drawings made by him 6,500
5,000 (ii) Further Capital introduced 22,000
Solution: (io) Profit for the period 7,500
Gaurav's Account (Debtor) is an Asset Balance the same and explain what the closing balance indicates.
Account, an increase is recorded on the debit
side, while a decrease is recorded on the credit side. Solution:
the Credit
Dr
GAURAV'S ACCOUNT Devender's Capital Account is a Capital Acount, an increase is recorded
Side, while a decrease is recorded on the debit side.
on

Particulars
Particulars Dr.
DEVENDER'S CAPITAL ACCOUNT
1. Sales
80000 2 Cash 30,000
Particulars Particulars
3 Discount Allowed To Drawings Alc 30,000
2,000 6,500 By Cash A/c-Capital
5. Bank (Cheque Received) o Balance cd 22,000
20,000 53,000 By Cash A/c-Capital
6, Sales Return 7,500
5,000 By Profit and Loss A/c 59,500
7. Balance
23,000 59,500
80,000 53,000
By Balance b/d
80,000
which indicates that
the business owes him
Note: 4th transaction will not be recorded in Gaurav's Account as goods have been Note: Prop S Capital Account has a credit
balance of 53,000
sold in cash, thie
this amount.
 CHAPTER7
Origin of Transactions-Source Documents
and Preparation of Vouchers
LEARNING OBJECTIVES
This chapter would enable students to understand:
Source Documents
Meaning of Voucher
Types of Vouchers:
Source Vouchers or Supporting Vouchers
Accounting Vouchers
Preparation of Vouchers
Transactions are recorded in the books of account on the basis of evidences which are
bills of purchase, invoices for sale, debit and credit notes, etc. These evidences being
the basis of recording entry, are known as Source Documents. Rules of debit and credit
are applied to each transaction and a voucher is prepared before recording it in the books
oforiginal entry, i.e., Journal or Special Purp0se Books in a chronological order. The
entries recorded in these books of account are transferred to the specific Ledger acounts.
In this chapter, Source Documents and Vouchers shall be discussed.

sOURCE DoCUMENTS

An evidence of a transaction or an event.

DOurce document is an evidence of transaction or event having taken place. It is of

prime importance in accounting because accounting is based on factual financial
ntormation, i.e., evidence. For example, a cash memo showing cash sales, an invoice
showing sales of goods on credit, bills of purchases showing purchases of goods on
redit, a receipt made out by the receiver for cash received, etc. These documents are
DOurce Documents and evidence in support of a transaction. They are also sometimes
called supporting documents.
Let us now discuss the most common source documents.
1. Cash Memo

Cash
Memo Memo isis prepared by the seller when goods are sold against cash. It has details
00ds sold, quantity, rate of each item and the total amount received, besides the
date ofbf transaction and other terms and conditions, if any. It is an evidence for the
purchaser for,
aser for,
sales for cash.
goods purchased against cash, and for the seller, it is an evidence of
 DOuoe
-CBSE Origin
of wnctions-Source Documents and Preparation of
Transactions-Source De

Vouchers 73
72
Memo 1s a s
follows:
of a
A specimen of Receipt is as
follows:
Cash
specimen ofa CASH MEMO
A
CHHABRA SILK&SAREES
MODERN ELECTRIC
Saree Specialists Dealers in SUPPLIERS LTD.
131, NowhereEverything Electrical
Retail Wedding
Wholesale and 110 065
Maharani Bagh, New Delhi, Street, Delhi 110 001
CTC Plara, Ring Road, No. 15137

Date: 3.2.202 Date: 5.2.2021

with thanks from
Received M/s. Ideal Customer, Fine
No Rate Amount Twenty Seven Thousand only City a sum

Quantity Description7 ofRupees n

1,000 10,000
Cash/Cheque No.
559891_dated 5.2.2021 drawn on Canara 'Bank, Vivek Vihar, Delhi
10 Sarees
1,000 4,000 on account ofInvoice No. 3978 dated 3.2.2021
Shawis 14,000
(Rupees Fourteen Thousand Only) Authorised Signatory
Note: Cheques are subject to realisation.
For Chhabra Silk &
Goods once sold will not be taken back. Sarees
4.Pay-in-Slip
Invoice Bill
2. or
sold on credit. It h It is a source document used for
An Invoice or Bill is prepared by the seller when the goods are
a depositing cash or cheques into bank. Pay-in-Slip is
sold and the total sale amon form available from a bank. It has a counterfoil which is retained by the depositor.
details of the party to whom goods are sold, goods
a

and a duplicate coDv

1ount Now-a-days, banks place a box in which cheques along with the filled pay-in-slips
The original copy of the sales invoice is sent to the purchaser
it in the books of account and can be dropped. In such cases, counterfoils are not signed. The counterfoil of the
retained as an evidence of the sales for recording
future reference. For the purchaser, credit purchases are
evidenced by bill receivd nav-in-slip gives details regarding the date and the amount (in cash or cheque) deposited.
A specimen of a Invoice or a Bill is as followS: A specimen of a Pay-in-Slip is as follows:
from the supplier.
INVOICE
MODERN ELECTRIC SUPPLIERS LTD. PAY-IN-SLIP DATE PAY-IN-SUP
AXIS BANK LTD. o, apat Nagar TRAN. 1D NO.
Dealers in Everything Electrical AXIS BANK LTD. New Delh-110024 doroficeusel
ACCOUNT N
131, NowhereStreet, Delhi 110001 NEW.DELHE:110 024
FOR CREDIT OF CURRENT VC
FOR CREDIT OF CURRENT A/C
No. 3978 Date: 3.2.202 AcCOUNTNO III H1 NOTEEAEDSE SAE SOLOOAL OUSTAO CREOUES ANOCASH
NAME
NAME CHEQUE DETAILS CASH DEROS3
ldeal Customer BANK 8RANCH CHEQUENO. DENO PIECES
DETAILS OF CASH/CHEQUE LO0O
Everywhere Road, Fine City, Meerut (UP)
100
Quantity Particulars Rate Amount

TOTAL Rupees (in words)

Refrigerators (167) 8,000 16,000 lupees (in words) TOTAL
10 Automatic Irons SIGNATURE OF QEPOSITOR
1,100 11,000 ENTERED

Total 27,000
Rupees Twenty Seven Thousand Only 5. Cheque
E.&.OE Sales Manage Cheque is a document in writing, drawn upon the bank with which the account is held
3 Receipt and is payable on or after the due date. The bank supplies the cheque 1 rms. The name
OU the party to whom payment is to be made is written after the words Pay To. Then
When cash or eheque is received from a
1S 1sstued. The receipt customer,
is prepared in duplicate. a receiptcopy
The original is given
for the to the pau
ved by the
amount the amount is written-both in words and figures. A cheque is dated withsigned
rece and
making the payment and the on the counterfoil which remains
the account
uawer. The cheque details entered
name of the party and the duplicate is kept for record. It has
are

nature of the
details of date, amo older and is the source
in the books of account.
voucher for recording the transaction
payment.
 Double Entry book Neeping-

74 g-CBSE Origino fTransoctlons-Source

ctions-Source Documents and Preparation of Vouchers 7.5

A specimen of a Cheque is as follows:
CHEQUE
VOUCHER
ewM'Yy Meaning

Vouche thatdocument evidencing business transnction. It flows from the above

a a
when a transaction is entered that effect is also
into, an evidence tha
Source Documents. On the basis oftoSource
d e f i n i t i o n

er shed. Such evidence

nces are
estabi detailing
a voucher detail the accounts that are debited and Documents,
Types of Vouchers
credited is prepared.
Vouchers may be categorised into:
Vouchers or Source Jocuments
1.
Source

2. Accounting Vouchers.
or
Supporting Vouchers, and
1.2. Source Vouchers or Source Documents or Supporting Vouchers
6. Debit Note Vouchers or Source Documents or Supporting Vouchers are documents wnicn
made to the account of the n .
that a debit has been
A Debit Note is made out evidencing the debit. For example, a seller of goode Souto existence when a transaction is
entered into.
details the reason for
named in the debit note. It invoiced for less amount. Simila Features of Source Voucher:
that his goods have been document.
make a debit note if he finds
written
have been over-invoiced or he ( It is a

will make a debit note if the goods I t contains complete details of the transaction.
a purchaser of goods etc. The effect of a debit
returned the goods or the seller
has allowed a lower discount, I t is a proof of a transaction having taken place.
the account is already settled, goods
is that amount due to the supplier
is reduced or, if Can I t is generally for a business transaction.
A specimen of a Debit Note is given below: is signed by the maker.
() It
be purchased further without payment. 2. Accounting Vouchers
DEBIT NOoTE
An Accountant has witn him source or supporting vouchers for cash payments, cash
PROVOGUE
New Delhi 110019
receipts, invoices 1or credit purchases and sales. Yet, before recording in the books of
117.Kalkaji, account, these source vouchers are analysed to determine which account or accounts
Date: 20th are to be debited and credited. The decision is recorded on a document termed
No. 215
DEBIT NOTE April, 2021
Accounting Voucher. Thus, we can say that an 'Accounting Voucher is a written
document containing an analysis of business transactions for accounting and recording
Against. M/s. High & Low, New Delhi
Goods returned as per delivery Challan No. 93
R5,500 purposes, prepared by the Accountant on the basis of supporting vouchers and signed

Ranjit Kumar by another authorised person.

Manager Features of Accounting Voucher:
(Rupees Five Thousand Five Hundred Only)
) It is a written document.
7. Credit Note (i) It is basis of evidence of the transaction, i.e., Source Document.
prepared onofthe transaction.
For debtor. iii) It is analysis a
Credit Note is made out evidencing that credit has been granted
to a an

example, if a customer returns goods previously invoiced, or the

customer is allowed (v) It isprepared and signed usually by an Accountant and countersigned by the
authorised signatory.
further discount, a credit note is issued. The effect of a credit note is that the amount () In the case of cash/bank voucher, it is a receipt.
ofthe customer's indebtedness is reduced or, if it is already settled, to enable the Types of Accounting Vouchers
customer to purchase goods to the value ofcredit without further payment. A specimen Accounting Vouchers are of two types, i.e.,
ofa Credit Note is as follows: 1. Cash Vouchers; and
CREDIT NOTE 2. Non-Cash Vouchers or Transfer
Let us discuss them in detail.
Vouchers
ASHI GLASs Co.
1. Cash Vouchers
24, Darya Ganj, Delhi 110 002
Cash Voucher is the voucher prepared at the time of receipt or payment of cash and
No. 212 CREDIT NOTE Date: 15.2.2021 includes receipt and payment through cheques.
M/s.Prabhat Electric Co. Debit Voucher.
Bhagirath Place, Chandni Chowk, Delhi Cash Vouchers can be of two types namely () Credit Voucher and (i)
Goods received as per delivery Challan Na. 2173 dated 14.2.2021
) Credit Vouchers
15,000 cash is received. Cash may be received
(Rupees Fifteen Thousand Only) Credit Vouchers are prepared when
of fixed assets, (c) sale of investments,
Manager against (a) sales of goods, (b) sale
() receipts from debtors and (e) withdrawal from bank, ete.
 Source Documents and
Double Enty
Book Keeping-c
-CBSER o n i g i n o f
T r a n s o c t i o n s

Preparation of Vouchers 7.7

A Debit Voucher gives the following information:
7.6
Voucher is given
below:
. Nameand Address of the
Organisation.
Credit (Cash) Preparing the
Voeucher.
A format of a CREDIT VOUCHER
Date of Voucher Num
HARRY&SONS (P)LTD ******ee. 3 . A c c o u n t i n g

Delhi110
01 Date:13.2.2021 ofthe Account Debited.
24RajivChowk New
Title
Amount ) 5Transaction
4. Amount.
bucher No, 301
ration, i.e., brief description of the
a

of the Person preparing it. transaction.

20,000
Signature
7.
8. Signature of
of the Authorised
Credie Sales Ac sopoan************os

Voucher Number.
Signatory.
vide Supporting
Goods soldforcash 9. in lieu of the

20,000a*orese******ek.. 10. A
Document

Vouchers
Supporting Voucher.
S No. 500) Total 5
2
N o n - C a s h
or
ransfer Vouchers
Sd
Accountant
N o n - C a s h
Vouchers
vouchers prepared for are the
transactions not involving cast
Invoice or Bills, Debit and
these are
ples ofthe
Exan Credit Notes, etc. Non-Cash Vouchers
Manager the transactions of credit
for th
epared sales, credit purchases, goods returned (Dotn
and outwards), rectifying the errors, etc.
are

inwards
the following information:
inwaofa Non-Cash Voucher is given below:
The Credit Voucher gives (3) TRANSFER VouCHER
of the Organisation.
1. Name and Address
2. Date of Preparing the
Voucher. HARRY&CO. (P) LTD.
10, Gole Market, New Delhi
Accounting Voucher
3.
Number. 110 001 evatosas (1)
4. Title of the Account Credited. Voucher No. 501 Date: 13.52021 * * * * * * *

5. Amount of the Transaction. transaction.

Amount (4)
brief description of the
. Narration, i.e., a Person Debit MachineYAC ***anesner*oseresesseseseessnsvaus-e
52,000 *unneur- 4a)

7. Signature of the preparing it.

Authorised Signatory. Credit: Ram*****s*sar*****aseana*sasss vee**-*eorere *po*are 52,000 H4D)
8. Signature of the
(Machinery purchased ***********************eea***e*sens
**g*evare**e*ssa *a*****a*** 0
9. Supporting Voucher Number. vide Bill No. /0)*d***************o*eereeseceetes oenen s*oen anuooooe 9 )

) Debit Vouchers 52,000 onenat )

made be
Debit Vouchers prepared when payment is made. Payment may
are Sd- Sd/-
of fixed assets,
against (a) expenses, (b) purchases of goods, (c) purchase Manager
Accountant
(a) payment to creditors, (e) deposits into bank, (f) drawings, etc.
7)
A format of a Debit (Cash) Voucher is given below:
Non-Cash Voucher gives the following information:
3) DEBIT VOUCHER
1. Name and Address of the Organisation.
HARRY&SONS (P) LTD.
2. Date of Preparing the Voucher. 3. Accounting Voucher Number.
24, Rajiv Chowk, New Delhi 110001- wwasassadsn ********1************** ?
Amount.
Voucher Na. 5 Date: 13.4.2021 4. Titles of the Accounts Debited and Credited. 5. Transaction
Amount ) 7. Signature of the Person preparingit.
6. Narration.
Debit: Purchases A/c- 10,000 8. Signature of the Authorised Signatory. 9. Supporting Voucher Number.
*******aamsam*** ************ (4
7

Funiturepurchased vide
Compound Voucher
Cash Memo Na. 726) credit/debit is called
which records a transaction that entails multiple debits/credits and one
voucher
Total 10,000 * * * * * *

(5 Compound Voucher
Credit Voucher.
Sd Compound Voucher may be: (a) Debit Voucher or (b) called
Sd- debits but one credit is
A transaction that contains multiple
Manager Accountant youcher showing a
transaction that contains multiple credits
but one debit is called
vOucher. A voucher showing a

Credit Voucher.
7
 pardtion of Vouchers
orng
PREPARATION OF VOUCHERS

Voucher No. M/S RAHUL&CO.

vou Date:
Memo, etc., by itself is a
dher but Amount )
D o c u m e n t ) , i.ie, Cash on which the
the accounts Debit Stationery A/c
(Source
called Voucher
is prepared 1,100
The
evidence

printed
paper
action is writte
transaction (Stationery purchased on credit vide
a
(narration) ofthe
practice
normally,

along with
al
the description Bill No..dated.)
and
credited 1,100
be
debited
Credit: M/s Ashok&Co,
Voucher is given below: 1,100
of a
A specimen XYZ&CO. 1,100
Date Sd/
VoucherNo.. Amount Authorised Signatory
Sd/
Accountant
750
Debit: Stationery A/c
(Pens, papers, etc, purchased
from M/s. Ashok &Co. cash)
in 750 Illustration 1.

750 Following transaction took place in Prabhat Electric Co. Delhi. Prepare the debit
Credit: Cash A/c
vouchers:

2021
750 Jan. Bought electrical goods for 10,000 against
( cash vide Cash Memo No. 338
Sd/ Jan. 8 Paid wages for the month of December, 2020
5,000
Sd/
Accountant
Authorised Signatory
Solution:

discusSs the manner in which a voucher 1s prepared. The sours PRABHAT ELECTRIC CO
Let us now
of transaction and the account Voucher No.1 Delhi Date: 1.1.2021
document is analysed to determine the nature a

example. XYZ & Co. purchase Amount

to be debited and credited. Let us take a simple Debit: Purchases A/c
a Cash Mem
10,000
for which it receives
stationery for 750 against cash payment Electrical goods purchased vide
Source Document (Cash Memo
along with the stationery items. An analysis of Cash Memo No. 338)
be debited following the rule
establishes that the Stationery Account should 10.000
Purchase of stationer
Tncreases in expenses are debited and decreases are credited. Sd/ Sd
Accountant
isan expense. Therefore, it is debited. Cash has been paid against
the purchase Manager
Tncrease in
andCash Account is an asset, it should be credited following the rule (i)
asset is debited, and decrease is credited.' Now based on the source document, a
PRABHAT ELECTRIC CO.
accounting voucher has been prepared. Voucher No.2 Delhi Date:81.2021
Amount
Letus take another example not involving receipt or payment of cash. Suppos
Debit: Wages A/c 5.000
Ms. Rahul & Co. purchases stationery of 1,100 from M/s. Ashok & Co. on credi (Wages paid for December 2020)
5,000
and receives their invoice bill.As an expense has been incurred, Stationery Accou
or

1.100) will be debited and the account of M/s. Ashok &Co. will be credited sin Sd
Sd/-
theyhave supplied goods on credit following the rule Tncrease in liability is credi Manager
Accountant

and decrease is debited'. Voucher for the above transaction will be as follows:
 3
Orng and
7.10 Preparation of Vouchers 7.11
Illustration 2.
took place
in
Traders, Patna.
M/s Ace Tra
debit vouchen
Prepare the debit
(iU)
transactions M/S ACE TRADERS
The following
Cash Memo No 2an
Fumiture, Patna for R 7,500 against cash vide Voucher No, 4
2021 from Modem
Bought funiture 2020 Date: 27.1.2021
0) January
8 Wages pald
for the month ofDecember,
purchase of2 sewing
machines 35 Debit: Postage A/c Amount )
W) January & Sons, Patna for
Paid cash to Hari
January 25
AR) No. 1230 (Amount paid for 200
vide Cash Memo Postage Stamps)
Ow)January27 Paid for Postage Stamps 200
Sd/
Solution:
Manager Sd/
(0) M/S ACE TRADERS Accountant
llustration 3.
Date: 1.1.2021
Voucher No. 1 nare the Credit Vouchers from the source vouchers
Amount based on the following transactions: of Mis Ram Lal& Co., New Delhi

Debit: Furniture A/c 7,500 2021

Sold goods for cash for 12,000 vide Cash Memo
(Furniture purchased vide April No. 64
old old typewriter for cash
April 26
300 vide cash receipt No. 344
Cash Memo No. 240) 7,500 April 30 Withdrew cash 15,000 from Bank for office use vide
cheque No. 12349
Sd/ Sd/ Solution:
Manager Accountant
M/S RAM LAL&CO.
(i M/S ACE TRADERS
eesoaseoee
aad*****tsse***

New Delhi
Voucher No. Date: 5.4.2021
Voucher No.2 Date: 8.1.2021
Amount () Amount R)
Credit: Sales A/c
Debit: Wages A/c 3,500 12,000
(Amount of Cash Sales vide Cash Memo No. 64) 12,000
(Wages paid for December, 2020)
,50
Sd/ Sd/
Sd/ Sd Manager Accountant
Manager Accountant

Gi) M/S ACE TRADERS M/S RAM LAL&CO.

ssesaoseeseseoeaesassageessaesesn
reresscrsesrdtpessesaseres

atesssesoeessrorses astss

Voucher No.3 Date: 25.1.2021 New Delhi

Amount ( Date: 26.4.2021
Voucher No.
Debit: Machinery A/c 2,500
Amount)
Credit: Typewriter A/cC 300
Amount paid for 2 sewing machines purchased for
(Old typewriter sold for cash vide Cash Memo No. 344) 300
cash vide Cash Memo No. 1230)
Sd/
2,500
Sd/
Accountant
Manager
Sd/ Sd/

Manager Accountant
 Double Entry
boOk NEEP

9L8SE Onign
o rlnansa
Utuments and
Preparation of Vouchers 7.13
7.12
(u

RAM LAL&
CO. MIS
M/S IMPERIAL LEATHER
STORES
New Delh
Date: 304.2021 veiereeiesrsres
Amount () Agra (U.P)
VoucherNo VoucherNo.3
15,000
Date:15.1.2021
Credit: Bank A/c
(Cash withdrawn from Bank
vide Cheque No. 12349)
15,000 Credit: Sales Ac

(Amount of
cash sales vide Cash Memo Nos.
Amount ()
Sdl 317-320) 15,000
Accountant 15,000
Sd Sd
Manager Manager Sd/
Illustration 4. Accountant
collected Irom supportin
from the following
information, ing
Prepare Credit Vouchers (U.P.): (v)
Leather Stores, Agra
vouchersof M/s Imperial M/S IMPERIAL LEATHER STORES
351
2021 on account
vide cash receipt No.
M/s Mohan&Co.
ssep sereooeoseesetoents
0 January 5 Recelvedcash 10,000from No. 360
Commission received ? 10,000vide cash
receipt esesneesstae idegssss
) January 10 317-320
Cash Memo Nos. Agra (U.P)
R) January 15 Sold leather purses of 15,000 against cash vide Voucher No. 4
vide Cash Memo No. 1230 Date: 24.1.2021
Sold two old sewing machines of 2500
) January 24
Amount )
Machines Ac
Solution: Credit: Sewing
2.500
() Two old sewing machines sold for cash vide Cash Memo Na. 1230) 2,500
STORES
M/S IMPERIAL LEATHER
Sd/ Sd/
Agra (U.P) Date: 5.1.2021 Manager Accountant
Voucher No.1 Amount (
10,000 Tllustration 5.
Credit: M/s Mohan&Co.
(Cash received on account from M/s Mohan&Co. vide cash receipt
No. 351) Prepare the Accounting Voucher from the following supporting voucher:
10,000
Sd/ RAM RATAN &SONS
Sd/-
Accountant
Manager 32, Industrial Area, Meerut (U.P)

(7) Sale Bill No. 1215 Date: 10.4.2021

M/S IMPERIAL LEATHER STORES M/s Murari Lal &Sons

Particulars Rate/Unit Amount

Qty.

Agra (U.P)
Voucher No.2 Date: 10.1.2021
20 Cricket balls 100 2,000
Amount () 2,000 20,000
0 Full size bat
Credit: Commission Received A/c 10,000 22,000
(Amount of commission received vide cash receipt No. 360) 10,000 Sd/
Sd/ Sd/ Ram Ratan &Sons
Accountant
Manager