Accounting Basics

Accounting Equation :

Assets = Liabilities + Capital (Equity)

Important points to remember for journal entries:

• If value of assets increases, assets account will be debited.
• If value of assets decreases, assets account will be credited.
• If value of liabilities increases,liabilities account will be credited.
• If value of liabilities decreases,liabilities account will be debited.
• All incomes / gains are credited.
• All expenses / losses are debited.

Three types of accounts:

i. Personal (Natural person, artificail person or representative of person).

ii. Real (tangble real (includes all assets) & intangible real).

iii. Nominal (all accounts having a name like rent ac named on type of expense): All incomes & expenses fall under this category.

Please note that as soon as a prefix (prepaid) or suffix (outstanding) attaches to an account, it becomes a  personal account.

Three Golden rules of accounting:

i. Personal Account: Debit the receiver, Credit the giver.

ii. Real Account: Debit what comes in, Credit what goes out.

iii. Nominal Account: Debit all expenses, Credit all incomes.