Book Keeping and Accounting – Rules for

identifying debit and credit , preparation of

Ledger Accounts and Trial Balance

Presented by:
Mohammad Abdur Rahim, FCA
Managing Director & CEO
Islami Bank Capital Management Ltd.
Book Keeping:

Book keeping (book-keeping or book

keeping) is the recording of all
financial transactions undertaken by
an individual or organization.
Accounting:
Accounting is the recording,
classifying and interpretation of the
economic facts of business
enterprise.
Double Entry System

Each and every transaction is split up

into two aspects and both these
aspects are recorded without any
exception
Accounting Equation:
Debit (Dr.) = Credit (Cr.)
or
Capital + Liabilities = Assets
Accounting Cycle:
(1)
IDENTIFY,
CALCULATE AND
RECORDING
(in Journal)

(2)
(5)
CLASSIFYING
ANALYSIS &
(in Ledger)
INTERPRETATION
(Through ratio analysis)

(4) (3)
REPORT OF TRANSACTIONS SUMMARIZING
(in Financial Statement/Balance (in Trial Balance)
Sheet)
 Accounts and its types:
Accounts is formal record of a particular type of
transaction expressed in money or other unit of
measurement and kept in a Ledger.

Traditionally, accounts were divided into two classes

1. Personal Accounts:
It can be divided into three Sub-Accounts.
a. Natural persons
b. Artificial Persons
c. Representative Persons
2. Impersonal Accounts:
It can be divided into two Sub-Accounts
a. Real Accounts
b. Nominal Accounts
Rules for Identifying Debit & Credit:
A. Golden Rules of Accounting:
Sl. Name of the Debit Credit
No. Account
01 Personal Account Receiver the value Giver the value

02 Real Account What comes in? What goes out?

03 Nominal Account Expenses /Loss Income/Gain

B. Modern/Alternative Approach:

Sl. Name of the Account Debit Credit Normal

No. Balance

01 Assets Account Increase (+) Decrease (-) Debit

Liability Account /
02 Decrease (-) Increase (+) Credit
Owners’ Equity A/C

03 Revenue Account Decrease (-) Increase (+) Credit

04 Expense Account Increase (+) Decrease (-) Debit

Journal:

Journal is a chronological permanent

record of transactions showing for each
transaction the debits and credits.
Example: To illustrate the posting of transactions in the general Ledger,
the following transactions taken from the example on general journal
entries. It is mentionable that at the end of the 2006, the company have
following position i.e. Tk. 10,000/- as Cash in Hand balance , Tk. 20,000/-
as Furniture & Fixture, Tk. 10,000/- as Accounts Receivable and
Tk. 35,000/- as Capital, Tk. 5,000/- as Accounts Payable.
Date Accounts and explanation L.F Debit Credit
01 Jan,2007 Cash 10,000
Furniture and Fixture 20,000
Account Receivable 10,000
Capital 35,000
Accounts Payable 5,000

Jan.- 03 Received a cash amount of Tk. 3,000 which was receivable.

Date Accounts and explanation L.F Debit Credit

03 Jan,2007 Cash 3,000

Account Receivable 3,000

Jan.- 05 Tk. 2,500 was paid to the Service provider which was payable.
Date Accounts and explanation L.F Debit Credit
05 Jan,2007 Account Payable 2,500
Cash 2,500
Jan.- 10 Tk. 3,000 was accrued as Advertisement Expenses
Date Accounts and explanation L.F Debit Credit
10 Jan,2007 Advertisement Expenses 3,000
Account Payable 3,000

Jan.- 12 Tk. 5,500 was paid for purchase of Furniture & Fixture
Date Accounts and explanation L.F Debit Credit
12 Jan,2007 Furniture and Fixture 5,500
Cash 5,500

Jan.- 15 Tk. 1,000 was expended for purchasing Office Supplies

Date Accounts and explanation L.F Debit Credit
15 Jan,2007 Office Suppliers Expenses 1,000
Cash 1,000
Jan.- 20 Tk. 5,000 was received for providing Services.
Date Accounts and explanation L.F Debit Credit
20 Jan,2007 Cash 5,000
Service Revenue 5,000

Jan.- 22 Tk. 2,000 was receivable against providing of Services

Date Accounts and explanation L.F Debit Credit

22 Jan,2007 Account Receivable 2,000
Service Revenue 2,000

Jan.- 25 Tk. 1,000 was withdrawn form the Business for personal use of the
proprietor.
Date Accounts and explanation L.F Debit Credit
25 Jan,2007 Drawing 1,000
Cash 1,000
The General Ledger:

The books which contains accounts is known as

General Ledger or general Ledger is a collection of the
firm’s accounts. While the general journal is organized
as a chronological record of transactions, the ledger is
organized by account.
Different Format of General Ledger:

1. T- accounts

Debit Side Credit Side

Date Particulars L.F. Amount Date Particulars L.F. Amount

2. Commonly use in Business Concerns

Date Particulars/ Explanation Folio Debit Credit Balance

 The above journal entries affect a total of fourteen different
accounts and would be posted to the general ledger as follows :

Cash Account No. 1

Date Explanation Folio Debit Credit Balance
January 01 Balance 10,000.00
2007

03 Accounts Receivable 3,000.00 13,000.00

05 Account payable 2,500.00 10,500.00

12 Furniture and Fixture 5,500.00 5,000.00

15 Office Supplies 1,000.00 4,000.00

20 Service Revenue 5,000.00 9,000.00

25 Drawings 1,000.00 8,000.00

31 Balance 8,000.00
 Accounts Receivable Account No. 2
Date Explanation Folio Debit Credit Balance
January 01 Balance 10,000.00
2007

03 Cash 3,000.00 7,000.00

22 Service Revenue 2,000.00 9,000.00

31 Balance 9,000.00

Furniture and Equipment Account No. 3

Date Explanation Folio Debit Credit Balance

January 01
2007
Balance 20,000.00

12
Cash 5,500.00 25,500.00

31
Balance 25,500.00
Accounts Payable Account No. 4
Date Explanation Folio Debit Credit Balance
January 01 Balance 5,000.00
2007

05 Cash 2,500.00 2,500.00

10 Advertisement Expenses 3,000.00 5,500.00

31 Balance 5,500.00

Capital Account No. 5

Date Explanation Folio Debit Credit Balance

January 01 Balance 35,000.00

2007
31 Balance 35,000.00
Drawing Account No. 6

Date Explanation Folio Debit Credit Balance

January 25 Cash 1,000.00 1,000.00
2007

Service Revenue Account No. 7

Date Explanation Folio Debit Credit Balance

January 20 Cash 5,000. 5,000.00

2007 00

22 Accounts Receivable 2,000. 7,000.00

00
Advertisement expenses Account No. 8

Date Explanation Folio Debit Credit Balance

January 10 Account payable 3,000.00 3,000.00

2007

Office Supplies expenses Account No. 9

Date Explanation Folio Debit Credit Balance

January 15 Cash 1,000.00 1,000.00

2007
 Trial Balance:
A Trial Balance is a list of the ledger account at a specific date, showing
their balance or debit and credit total for each, in debit and credit amount
columns. Basically, it is prepared for check that the general ledger is in
balance.
Trial Balance
As at 31st January 2007
Accounts Debit Credit
Cash 8,000.00

Accounts Receivable 9,000.00

Furniture and Equipment 25,500.00

Account payable 5,500.00

Drawing 1,000.00

Capital 35,000.00

Service Revenue 7,000.00

Advertisement expenses 3,000.00

Office Supplies expenses 1,000.00

Total Summation Taka: 47,500.00 47,500.00

 In this example the debits and credits balance are same. This
result does not guarantee that there were no errors. For example,
the trial balance would not catch the following types of errors:

• Transactions that were not recorded in the journal.

• Transactions recorded in the wrong accounts

• Transactions for which the debit and credit were transposed

• Neglecting the post a journal entry to the ledger.