Chapter 2: Double Entry Book Keeping

CHAPTER 2: Meaning & Fundamentals of Double Entry Book Keeping

INTRODUCTION:
 Double Entry Book Keeping System was based on the fact that in every
business transaction, two persons / parties / accounts are involved.
 Out of the two parties involved, one is considered as a receiver of the
benefit while the other as provider of the benefit.
 There will be always two aspects to a transaction i.e. if something comes
in the business it has to go out from other business.
 Recording such dual aspects of business transactions in the books of
accounts in the form of Debit and Credit is known as "Double Entry
System of Book Keeping".
 “In 1494, Luca D Bargo Pacioli, an Italian merchant, a great philosopher
and mathematician, evolved the present Double Entry Book Keeping
System”

SYSTEMS OF RECORDING ACCOUNTING INFORMATION:

i. Indian System:
a. This system of accounting is also known as Mahajani, Marwadi, Deshi Nama
System, etc.
b. Most traditional and conventional system of accounting (maintained in different
languages such as Marathi, Hindi, Marwadi, Urdu etc.)
c. Here the business transactions are maintained books known as Kird and Bahi
Khata. (For small scale)
d. Such system is not scientific in nature as it is not based on Double Entry Book
Keeping System.
ii. English Entry System:
Under English Entry System, there are two systems of recording accounting information
Single Entry System:
o This system maintains only Cash Book and Personal Accounts.
o This system changes with the suitability of businessmen for recording
transactions
o Hence, it is known as an incomplete system of accounting.
o This system has several defects and faults and it is also unscientific in nature.
o It does not provide a true picture or accurate information about the financial
position of business.
o It is suitable to small scale businesses only.
 Double Entry System:

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 Chapter 2: Double Entry Book Keeping

o This system is regarded as the most accurate, scientific and complete system of
recording business transactions.
o It has established due to the evolution of various accounting methods and
techniques.
o It assumes that every transaction have two aspects which affect two accounts.

Principles of Double Entry System

The main principles of Double Entry Book Keeping System can be stated as follows:
i. Minimum two aspects are there for every business transaction.
ii. These two aspects involve minimum two accounts.
iii. Out of the two accounts involved, one is the receiver of the benefit and the other is
the giver of benefit.
iv. If one account is debited then the other must be credited with equal amount, i.e. every
debit has corresponding credit and every credit has corresponding debit of an equal
amount.

Comparison between Conventional Accounting System and Double Entry Book Keeping
System
Conventional Accounting System Double Entry Book Keeping System
Meaning
l-
Conventional Accounting System is Double Entry Book Keeping System is
unscientific in nature and records scientific in nature and records complete
incomplete business transactions. business transactions.
Coverage
ii. Less information of business Complete and full information of business
transactions are covered in this method transactions are covered in this method of
of accounting. accounting.
Accuracy
iii. Arithmetical accuracy is not definite. Arithmetical accuracy is guaranteed and
definite.
Nature
iv. Its nature is traditional. Its nature is modern.
Number of Books of Accounts
V. In this system, two books are In this system, all Subsidiary Books,
maintained i.e. Cash Book and Ledger. Journals and Ledgers are maintained.
Recording

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 Chapter 2: Double Entry Book Keeping

vi. Transactions are recorded in cash book Transactions are recorded in various
only. subsidiary books / journals.

Advantages of Double Entry Book-keeping System

1. Complete Record: All business transactions are recorded
2. Accuracy: Both aspects are recorded in the books of accounts
3. Business Results: All expenses, losses, income, gains, liabilities, assets, debtors and
creditors all these transactions are recorded
4. Common Acceptance: It is widely accepted since it follows universal accounting principles

Meaning of Account and Accounting Equation Rules

Meaning of Account:
An account is a summarized form of recording business transactions relating to a specific
person, specific asset, specific liability, specific head of an expense or income recorded at one
place. (Summary of related information at one place)
It becomes important for the businessman to balance the accounts on a particular date in
order to find out information related to the business such as:
i. Amount of capital in business.
ii. Amount incurred for the business expenses.
iii. Balance of Cash in Hand and Cash at Bank.
iv. Position of fixed and current assets in business.
v. Total liabilities of business.
vi. Amount of goods or cash taken away by the businessmen for his own personal or
domestic use i.e. Drawings.
vii. Income received by business from various sources.
When such transactions are recorded systematically on the debit and credit sides, it gives
complete and accurate information about the financial position of the business to the
businessman. Its simple form is "T".
Specimen of an Account:
Dr. (Left hand side) Name of Account (Right hand side) Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.

Total: Total:
An account is divided into two equal parts by drawing a double line in the middle of the
account. The left hand side is "Debit Side" whereas the right hand side is "Credit Side".

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 Chapter 2: Double Entry Book Keeping

CLASSIFICATION OF ACCOUNTS
Meaning:
Classification of Accounts is when different accounts are grouped or divided or arranged in
certain well-defined classes for the objective of making entries in the books of accounts.
The accounts can be classified into Personal and Impersonal accounts.

Personal Accounts:
It includes the account of Natural persons / Artificial persons and group of persons with whom
the business deals. It consists of the
Following accounts:
i. Natural Person's Account: The account which is related to the human beings individually
is known as "Natural Personal Account". For e.g., Ram’s Account, Shyam Account etc.
ii. Artificial Person's Account: The account which is recognized as an artificial person by
law in business dealings is known as "Artificial Person's Account". These include
organisations, associations, institutions, etc. For e.g. Hospital’s A/c, Health Club
Account, Bank of Baroda Account, Company Account, Sports Club Account etc.
iii. Representative Personal Account: Such type of account represents a certain person or
group of persons in business dealings. It includes accounts relating to Outstanding and
Prepaid items. For e.g. Outstanding Expenses Account, Prepaid Expenses Account,
Outstanding Income Account (income due but not received), Income Received in
Advance Account, Creditors Account, Debtors Account etc.

Impersonal Accounts:
i. Real Account: Real Account includes the account of things, articles or commodities
which can be seen and are tangible in nature. It states the value of various assets held by
the business such as land and building, machinery, furniture etc. It consists of the following
accounts:
a. Tangible Real Account: Tangible Real Account consists of all those items which can be
touched, measured, felt and have some physical form such as Cash Account, Goods Account,
Furniture Account etc.
b. Intangible Real Account: Intangible Real Account consists of all those items which
cannot be touched, felt and does not have any physical form. However, the items can be
measured in monetary terms such as Goodwill Account, Patent Account, Trademark Account,
Copyright Account, etc.
ii. Nominal Account: Nominal Account refers to the accounts of losses and expenses and
incomes and gains. It does not represent any tangible item but exists in name only. For e.g.,

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Printing and Stationery Account, Salaries Account, Rent, Rates and Taxes Account, Commission
Received Account, Interest Received Account, etc.

A brief review of Real Accounts, Nominal Accounts and Personal Accounts is as below:
Real Accounts Nominal Accounts Personal Accounts
Leasehold Building A/c Printing and Stationery A/c Mr. Raman's A/c
Building A/c Salaries A/c Lifeline Hospital's A/c
Plant and Machinery A/c Royalties A/c Bank A/c
Furniture and Fixtures A/c Wages A/c Bank of Baroda's A/c
Land A/c Freight A/c Loan from Sairaj's A/c
Premises A/c Trade Expenses A/c Drawings A/c
Copyright A/c Advertising A/c Capital A/c
Goodwill A/c Loss by Fire A/c Advance Received A/c
Office Equipment’s A/c Import Duty A/c Outstanding Commission A/c
Computer A/c Electricity Charges A/c Outstanding Interest A/c
Electrical Fittings A/c Audit Fees A/c Outstanding Salaries A/c
Investments A/c Repairs and Maintenance A/c Outstanding Interest A/c
Shares in XYZ Ltd.'s A/c Rent A/c Prepaid Salaries A/c
Freehold Premises A/c Interest A/c Prepaid Insurance A/c
Patents A/c Commission A/c Pre-received Interest A/c
Motor Van A/c Bank Charges A/c Subscription Accrued A/c
Debentures A/c Travelling Expenses A/c Interest Receivable A/c
Stock of Goods A/c Conveyance Expenses A/c Zilla Parishad's A/c
Livestock A/c Clearing Charges A/c Government of India's A/c
Stock of Stationery A/c Insurance Premium A/c Sports Club of Pune's A/c
Cash A/c Brokerage A/c Commission Received in Advance
Loose Tools A/c Dividend A/c -
Bills Receivable A/c Bad Debts A/c -
- Sundry Expenses A/c -
- Discount A/c -

MEANING OF DEBIT AND CREDIT

Debit refers to the benefit or gain received by a certain account. All debit items are to be
recorded to the left hand side of the account. 'Debiting an Account' refers to making a record
of a transaction after the proper and relevant rule is applied.

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Credit means the benefit or gain given by a certain account. All credit items are recorded to
the right hand side of the account. 'Crediting an Account' refers to making a record of a
transaction after the proper and relevant rule is applied.

Basic rules of Debit and Credit for different Accounts:

1. Personal Account: "Debit the Receiver" and "Credit the Giver".
2. Real Account: "Debit what Comes In" and "Credit what Goes Out".
3. Nominal Account: "Debit all Expenses and Losses" and "Credit all Incomes and Gains".

Illustration - Analysis of Business Transactions

Prepare chart showing Analysis of the following transactions in a Tabular form:
i. Mr. HAM started Pioneer Communication and introduced Rs. 15,00,000 into business.
ii. Opened a Bank A/c with State Bank of India and deposited Rs. 12,00,000.
iii. Purchased machinery worth Rs. 2,00,000 and payment made by cheque.
iv. Paid office Rent Rs. 12,000 by cheque.
v. Purchased office phone worth Rs. 5,000.
vi. Purchased office equipments worth Rs. 20,000 and payment make by cheque.
vii. Purchased goods worth Rs. 12,000 from Mr. Maganlal & Sons.
viii. Cash sales amounted to Rs. 10,000.
ix. Mr. HAM withdrew Rs. 5,000 for personal use.
x. Paid conveyance expenses of salesmen Rs. 2,000.

ACCOUNTING EQUATION:
Accounting Equation refers to the type of equation which signifies that the Assets of a concern
are always equal to the total of its Capital (proprietor’s equity) and Liabilities.

"Assets = Liabilities + Capital" OR "A = L + C"

Illustration - Accounting Equation

Show the accounting equation on the basis of the following transactions:
i. Mr. Rohit commenced business with cash Rs. 10,00,000.
ii. Purchased furniture worth Rs. 50,000.
iii. Purchased goods from Mr. Mehra worth Rs. 10,000 and payment made by cash.
iv. Goods purchased from Sai Traders Rs. 1,00,000 and payment made in cash.
v. Paid carriage inward Rs. 1,000.
vi. Paid for sundry expenses Rs. 500

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vii. Took a bank loan of Rs. 1,00,000

viii. Bought new machinery worth Rs. 4,00,000.
ix. Paid rent Rs. 5,000.
x. Cash sales made worth Rs. 7,000.

INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) —

Introduction:
i. Globalization of the economy led to many changes in Indian economy.
ii. Such changes demand that the Indian accounting system should meet or be well-
suited with the Standard of International Accounting Practices.
iii. But different countries have their own criteria with respect to accounting treatments,
disclosures and patterns to be adopted with same economic event which may create
chaos and disorder among the uses while translating the financial statements.
iv. For such reasons, IFRS has been adopted and established in order to bring uniformity
in the accounting practices followed by most of the countries.
v. IFRS is a single set of high quality, understandable and enforceable global accounting
standards. It is a principle based on set of standards which are drafted in a simple
manner and are easy to understand and apply.
It comprises of:
i. International Accounting Standards (IAS) issued before 2001.
ii. International Financial Reporting Standard (IFRS) issued after 2001.
iii. Standing Interpretation Committee (SIC) issued before 2001.
Above all, there exists a particular "Framework" for the preparation and presentation of financial
statements which describes the principles underlying IFRS.

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 Chapter 2: Double Entry Book Keeping

ACCOUNTING CYCLE

EXERCISE:
Classification of Accounts
*Q.l. Classify the following accounts under the types of Personal, Real and Nominal Account,
i. Life Insurance Premium A/c ii. Mr. Kulkarnis's Capital A/c
iii. Goods A/c iv. Freight A/c
v. Wages A/c vi. Goodwill A/c
vii. Copyright A/c viii. Outstanding Income A/c
ix. Bank Charges A/c x. Outstanding Expenses A/c
xi. Sundry Income A/c xii. Income Receivable A/c
xiii. Export Duty A/c xiv. Furniture A/c
xv. Import Duty A/c xvi. Free Sample Distribution A/c
xvii. Sundry Expenses A/c xviii. Discount A/c
xix. Drawings A/c xx. Fixed Deposit A/c
xxi. Profit on Sale of Furniture A/c xxii. Office Equipment A/c
xxiii. Bank of India A/c xxiv. Machinery A/c

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xxv. Carriage Outward A/c xxvi. Loss on Sale of Machinery A/c

xxvii. Loan A/c xxviii. Deposits with MSEB A/c
xxix. Loss by Fire A/c xxx. Legal Expenses A/c

Q.2. Classify the following mentioned accounts into Asset, Liability, Capital, Revenue and
Expense.
i. Life Insurance Premium A/c ii. Mr. Kulkarnis's Capital A/c
iii. Goods A/c iv. Freight A/c
V. Wages A/c vi. Goodwill A/c
vii. Copyright A/c viii. Outstanding Income A/c
ix. Bank Charges A/c X. Outstanding Expenses A/c
xi. Sundry Income A/c xii. Income Receivable A/c
xiii. Export Duty A/c xiv. Furniture A/c
XV. Import Duty A/c xvi. Free Sample Distribution A/c

xvii. Sundry Expenses A/c xviii. Discount A/c

xix. Drawings A/c XX. Fixed Deposit A/c
xxi. Profit on Sale of Furniture A/c xxii. Office Equipments A/c
xxiii. Bank of India A/c xxiv. Machinery A/c
xxv. Carriage Outward A/c xxvi. Loss on Sale of Machinery A/c

xxvii Loan A/c xxviii Deposits with MSEB A/c

xxix. Loss by Fire A/c xxx. Legal Expenses A/c

Q.3. Show the accounting equation on the basis of the following transactions.
i. Mr. Kumar commenced business with cash Rs. 50,000.
ii. Paid salary Rs. 1,200.
iii. Purchased furniture Rs. 5,000.
iv. Purchased goods from Rakesh for cash Rs. 7,500.
v. Sold goods to Shyam costing Rs. 13,000.
vi. Paid Rent Rs. 500.

Q.4. Show the accounting equation on the basis of the following transactions.
i. Mr. Rohit Kulkarni started business with cash Rs. 70,000.
ii. Bought goods from Sanjay Rs. 10,000.
iii. Sold goods to Shyam for Rs. 50,000 (costing Rs. 30,000).
iv. Goods destroyed by fire (cost Rs. 500, sale price Rs. 600).

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 Chapter 2: Double Entry Book Keeping

v. Purchased Furniture from J.K. Furniture on credit Rs. 5,000.

Q.5. Show the accounting equation on the basis of the following transactions.
i. Rajkumar started business with cash Rs. 30,000.
ii. Purchased goods for cash Rs. 1,000.
iii. Paid salary Rs. 400.
iv. Paid rent in advance Rs. 2,000.
v. Charged depreciation Rs. 300 on Furniture and Rs. 500 on Machinery.

Q.6. Show the accounting equation on the basis of the following transactions.
i. Mr. Ketan Shah started business with cash Rs. 50,000.
ii. Purchased goods from Ramesh Rs. 30,000.
iii. Withdrew goods for personal use Rs. 2,000.
iv. Purchased household goods for Rs. 15,000 giving Rs. 5,000 in cash and balance
through loan.
v. Paid cash Rs. 300 for interest.

Q.7. Prepare chart showing Analysis of the following transactions in a Tabular form.
i. Raghav started business with cash Rs. ii. Sold goods for Rs. 1,500.
50,000.
iii. Purchased goods for Rs. 1,000 from Amit. iv. Deposited into Bank of India Rs.
5,000.
V. Paid salary of Rs. 1,200. vi. Received commission Rs. 250 from
Ram.
vii. Purchased goods for cash worth Rs. 750 viii Withdrew Rs. 500 for personal use.
from Jay.
ix. Sold goods to Roshan worth Rs. 1,500. X Withdrew money for office use Rs.
1,300.
xi. Paid for transportation Rs. 430. xii. Loan taken from Mr. Mehta Rs.
5,000.

Q.8. Prepare chart showing Analysis of the following transactions in a Tabular Form.
i. Mr. Rohit Shah started business with cash Rs. 10,000.
ii. Purchased goods for cash Rs. 1,500.
iii. Deposited into Bank of Maharashtra Rs. 1,000.
iv. Sold goods to Rakesh Rs. 500.

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 Chapter 2: Double Entry Book Keeping

v. Paid Rent of Rs. 200.

vi. Received dividend of Rs. 550.
vii. Loan taken from SBI Rs. 2,000.
viii. Withdrew for office use Rs. 2,000.
ix. Paid for repairs Rs. 150.
x. Paid wages to Rane Rs. 200.

Extra Practice Problems

Classification of Accounts
Q.l Classify the following accounts under the types of Personal, Real and Nominal Account:
i. Octroi A/c
ii. Insurance Company's A/c
iii. Loan A/c
iv. Goodwill A/c
v. Furniture A/c
vi. Archana's A/C
vii. Conveyance A/c
viii. Prepaid Insurance A/c
ix. Commission A/c
x. Goods stolen by theft A/c
xi. Bank A/c

Q.2. Classify the below mentioned accounts into Asset, Liability, Income and Expenditure:
i. Octroi A/c
ii. Loan A/c
iii. Copyright A/c
iv. Goodwill A/c
v. Prepaid Insurance A/c
vi. Furniture and Fixtures A/c
vii. Commission paid A/c
viii. Land A/c
ix. Livestock A/c
x. Rent received
xi. Patents A/c

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Q.3. Mr. Shyam Ghosh submits the following information for the month ended 31st March,
2014. You are required to show the accounting equation for the same.
i. Opening Balances: Cash Rs. 1,00,000, Balance in Bank of Baroda A/c Rs. 3,50,000.
ii. Ghosh paid salaries to staff Rs. 30,000 by cheque.
iii. Paid Rs. 1,000 by cash towards office maintenance expenses.
iv. Purchased on credit from Sinha & Co. goods worth Rs. 79,000.
v. Paid Rs. 1,325 to Marketing Executive towards conveyance expenses.
vi. Paid Rs. 975 by cheque towards electricity expenses.
vii. Paid Rs. 12,000 by cheque towards office rent.
viii. Issued a cheque to Sinha & Co. of Rs. 78,000 towards full and final settlement
and received a discount of Rs. 2,000 against purchase made.

Q.4. Given below are some of the transactions from the books of Sunrise Ltd. Show how the
accounting equations tallies for each of them.
i. Brought in Rs. 15,00,000 as capital into the business.
ii. Opened account with SBI bank and deposited full amount therein.
iii. Leased a premise for office and paid rent of Rs. 20,000 by cheque.
iv. Purchased a second hand computer for office use on credit from Mr. Aniket Rs.
12,000.
v. Withdrew from bank for business use Rs. 5,000.
vi. Took a personal loan from Sudha Rs. 50,000.
vii. Brought into business, additional capital in the form of Cash Rs. 25,000 and
Furniture Rs. 40,000.
viii. Bought Machinery worth Rs. 15,00,000 after paying 50% amount by cheque.

Q.5. Following are the transactions for the month of April extracted from the books of Jugnu
Enterprises. You are required to prepare chart showing accounting equation of each of them.
i. Opening Balance: Cash Rs. 50,000, HDFC Bank A/c Rs. 1,50,000, Stock Rs.
45,000.
ii. Paid Rs. 4,500 by cheque towards stationery expenses.
iii. Purchased goods from Mr. Bharat worth Rs. 12,500 on 15 days credit.
iv. Purchased a computer from Global Computers on credit at Rs. 25,000.
v. Cash sales made Rs. 19,500.
vi. Depreciation charged on Computer Rs. 600.
vii. Purchased a Motor Car worth Rs. 2,25,000 by issuing cheque.
viii. Sold goods to Sharma Traders and received Rs. 11,600 by cheque.

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Q.6. Show the accounting equation on the basis of the following transactions:
i. Rajesh started business with cash Rs. 40,000.
ii. Purchased goods on credit Rs. 4,000.
iii. Paid rent in advance Rs. 2,500.
iv. Paid cash Rs. 500 for loan and Rs. 200 for interest.
v. Sold goods to Rupal costing Rs. 25,000 for Rs. 30,000.
vi. Paid salary Rs. 5,000.
vii. Purchased chair for Rs. 500 in cash.
viii. Paid rent Rs. 600.

Q.7. Show the accounting equation on the basis of the following transactions:
i. Morari started business with cash Rs. 35,000.
ii. Borrowed from Palak Rs. 10,000.
iii. Goods destroyed by fire [cost price Rs. 400, sale price Rs. 500],
iv. Paid salary Rs. 2,500.
v. Purchased goods on credit Rs. 5,000.
vi. Withdrew for personal use Rs. 500.
vii. Received interest of Rs. 1,500.
viii. Charged depreciation on Machinery Rs. 400.

Q.8. Show the accounting equation on the basis of the following transactions:
i. Mr. Maulik started business with cash Rs. 25,000.
ii. Sold goods to Suhani costing Rs. 20,000 for Rs. 30,000.
iii. Paid rent Rs. 2,000.
iv. Purchased goods on credit Rs. 10,000.
v. Withdrew for personal use Rs. 500.
vi. Received commission Rs. 1,500.
vii. Goods worth Rs. 5,000 were distributed as free samples.
viii. Purchased furniture for business Rs. 6,000.

Q.9. Show the accounting equation on the basis of the following transactions:
i. i. Ronit commenced business with Rs. 60,000.
ii. ii. Bought Machinery from Sumaria Rs. 4,000 on credit.
iii. Sold goods to Rajan costing Rs. 20,000 for Rs. 30,000.
iv. Paid rent Rs. 5,000.

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 Chapter 2: Double Entry Book Keeping

v. Received dividend of Rs. 3,500.

vi. Charged depreciation Rs. 600 on furniture.
vii. Goods destroyed by fire [cost price Rs. 600, sale price Rs. 700],
viii. viii. Paid salary Rs. 2,500. Rs.

Q.10. Show the accounting equation on the basis of the following transactions:
i. Jackie started business with cash Rs. 30,000.
ii. Cash Sales Rs. 8,000.
iii. Received commission Rs. 1,500.
iv. Cash purchases Rs. 7,000.
v. Purchased machinery from Thacker and Sons Rs. 11,000 on credit.
vi. Purchased goods for Rs. 4,500 on credit.
vii. Paid salary Rs. 6,000.
viii. Received interest Rs. 1,000.

Q.11 Show the accounting equation on the basis of the following transactions:
i. Cash introduced in business Rs. 5,00,000.
ii. Opened an Account with Bank of Baroda and deposited Rs. 4,00,000.
iii. Bought Machinery by issuing a cheque from Bank of Baroda A/c Rs. 50,000.
iv. Goods purchased from Mr. Sarang on credit worth Rs. 50,000.
v. Paid to Mr. Sarang in full by issuing a cheque.
vi. Paid wages Rs. 5,000.
vii. Royalty received in cash Rs. 7,000.
viii. Paid salary by cheque Rs. 12,000.
ix. Legal expenses paid in cash Rs. 2,500.
x. Paid conveyance expenses Rs. 250.

Q.12. Show the accounting equation on the basis of the following transactions:
i. Mr. Rahul had an opening balance of Rs. 25,000 Cash, Rs. 30,000 Machinery,
Rs. 3,70,000 Bank Balance and Rs. 30,000 Furniture.
ii. Bought computer from Ahmed on credit Rs. 20,000.
iii. Advance from customer received in cash Rs. 10,000.
iv. Sold machinery costing Rs. 20,000 at Rs. 25,000.
v. Withdrew from Bank for business use Rs. 5,000.
vi. Introduced additional capital of Rs. 50,000.
vii. Charged depreciation on Machinery Rs. 500.

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 Chapter 2: Double Entry Book Keeping

viii. Carriage inward paid in cash Rs. 500.

Q.13 Carefully examine the following transactions and advice as to which of the accounts will
be affected and accordingly classify the same.
i. Started business with cash Rs. 21,000.
ii. Deposited into the bank Rs. 5,500.
iii. Purchased goods for cash Rs. 7,000.
iv. Paid salaries Rs. 7,700.
v. Received rent Rs. 1,000.
vi. Cash sales amounted to Rs. 5,000.
vii. Bought goods from Viral Rs. 8,000.
viii. Purchased furniture for cash Rs. 6,000.
ix. Withdrew cash from business for personal use Rs. 1,500.
x. Paid advertisement Rs. 7,000.

Q.14 Following are the balances extracted from the books of Mr. Mahesh. You are required
prepare a chart showing analysis of the following transactions in a Tabular form:
i. Mahesh commenced business with a capital of Rs. 2,00,000.
ii. Purchased goods from Mr. Raj Rs. 6,000 and payment made in cash.
iii. Paid telephone bill by cash Rs. 3,000.
iv. Paid for electrical fittings for his business premises Rs. 5,000.
v. Paid conveyance expenses in cash Rs. 2,000.
vi. Paid for advertisement Rs. 6;000.
vii. Took loan from bank Rs. 5,00,000.
viii. Salary paid Rs. 9,000.
ix. Mahesh bought a Laptop for his personal use by withdrawing Rs. 30,000 from
business.
x. Sold goods to Mr. Sunil on credit Rs. 7,000

Q.15. Following are the balances extracted from the books of Mr. Rahul. You are required prepare
chart showing analysis of the following transactions in a Tabular form:
i. Mr. Rahul commenced business by introducing machinery worth Rs. 30,00,000.
ii. Bought computer from Ahmed on credit Rs. 20,000.
iii. Mr. Rahul paid LIC premium Rs. 5,000.
iv. Advance from customer received in cash Rs. 10,000.
v. Sold machinery costing Rs. 20,000 at Rs. 25,000.

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 Chapter 2: Double Entry Book Keeping

vi. Deposited into HDFC Bank amount of Rs. 20,000.

vii. Introduced additional capital in the form of Furniture worth Rs. 50,000.
viii. Interest on investments Rs. 2,500 received in cash.
ix. Carriage Inward paid in cash Rs. 500.

Q.16. Following are the balances extracted from the books of Mr. Mohite. You are required to
prepare a chart showing analysis of the following transactions in a Tabular form:
i. Cash introduced in business Rs. 5,00,000.
ii. Opened an account with Bank of Baroda and deposited Rs. 4,00,000.
iii. Bought machinery by issuing a cheque from Bank of Baroda A/c Rs. 50,000.
iv. Goods purchased from Mr. Sunder on credit worth Rs. 50,000.
v. Paid to Mr. Sunder in full by issuing a cheque.
vi. Paid wages Rs. 1,000.
vii. Royalty received in cash Rs. 7,000.
viii. Paid salary by cheque Rs. 12,000.
ix. Legal expenses paid in cash Rs. 2,500.
x. Paid conveyance expenses Rs. 250.

OBJECTIVE TYPE QUESTIONS

I. Answer in one sentence only: [1 mark each]
1. What is Double Entry System of Book Keeping?
Ans: Recording dual aspects of business transactions in the books of accounts in the form of
Debit and Credit is known as "Double Entry System of Book Keeping".

2. What is the main principle of Double Entry System of Book Keeping?

Ans: The main principle of Double Entry System of Book Keeping is that "every debit has
corresponding credit and every credit has corresponding debit with equal amount".

3. What is an Account?
Ans: An account is a summarized record of transactions affecting one person, one kind of
property or one class of gain or losses.

4. Give two examples of Personal Account.

Ans: Mr. Sahani's Account and Bank of Maharashtra's Account are examples of personal account.

5. What is Artificial Person's Account?

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 Chapter 2: Double Entry Book Keeping

Ans: The Accounts which are recognized by a low in business dealings as an artificial person
are known as artiticial person's account such as account of organization, associations,
institutions etc. For example, Helth Club's Account, Bank of Baroda's Account etc.

6. What is Real Account?

Ans: Real Account refers to an account of things, articles or commodities in the business which
can be seen and
are tangible in nature.

7. Give two examples of Real Account.

Ans: Building Account and Stock of Goods Account are the examples of real account.

8. What is Nominal Account?

Ans: Nominal Account refers to an account of expenses, losses, incomes, gains.

*9. What do you mean by debit?

Ans: Debiting an account refers to recording a transaction on the left hand side of an account.

*10. State the meaning of Accounting Equation.

Ans: Accounting Equation refers to the equation which signifies that the assets of a business
are always equal to the total of its liabilities and capital.

*11. State whether drawings increases or decreases owner's equity.

Ans: Drawings decreases the owner's equity.

*12. State the rule for Personal Account.

Ans: The general rule applied for debiting and crediting the Personal account is "Debit the
Receiver" and "Credit the Giver".

*13. What is rule of debit and credit for Nominal Account?

Ans: The rule of nominal account states that "Debit all Expenses or Losses" and "Credit all
Incomes, Gains".

14. Define IFRS.

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 Chapter 2: Double Entry Book Keeping

Ans: IFRS is a single set of high quality, understandable and enforceable global accounting
standards which is based on set of standards which are drafted in a simple manner and are
easy to understand and apply.

II. WRITE THE WORD/ TERM/ PHRASE WHICH CAN SUBSTITUTE EACH OF THE
FOLLOWING STATEMENTS: [1 MARK EACH]
1. The system of accounting which is regarded as the most accurate, scientific and
complete system of recording business transactions.
2. The person who has evolved the present double entry book keeping system.
3. The system of accounting which is also known as Mahajani, Marwadi, Deshi Nama
system.
4. Business Assets which cannot be seen, touched but can be sold for cash.
5. Accounts other than the impersonal account.
6. The account which includes accounts related to outstanding and prepaid items.
7. Accounts of properties.
8. Left hand side of an account.
9. Right hand side of an account.
10. Name the account which is debited when the proprietor uses business money for
domestic use.
11. Proprietor's personal account.
12. The amount paid to owner / author of book copyright for the use of book.
13. Name the account which is debited when dog is purchased for business security.
14. Name the account which is debited for payment of import duty.
Ans:
1. Double Entry System of Book Keeping 2. Luca D Bargo Pacioli

3. Indian System 4. Intangible Assets

5. Personal Account 6. Representative Account

7. Real Account 8. Debit side A/c

9. Credit Side 10. Drawings
11. Capital Account 12. Royalty
13. Livestock A/c 14. Import duty

III. SELECT THE MOST APPROPRIATE ALTERNATIVE FROM THOSE GIVEN BELOW AND
REWRITE THE STATEMENTS: [1 MARK EACH]
1. Indian system is most .............. system of accounting.

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 Chapter 2: Double Entry Book Keeping

(A) traditional (B) accurate

(C) scientific (D) complete

2. .............. system is known as incomplete system.

(A) Indian system (B) Single entry system
(C) Double entry system (D) None of these

3. Under Conventional accounting system, .............. book is maintained.

(A) cashbook (B) subsidiary books
(C) journals (D) none of these

4. Copyright Account is an example of .............. .

(A) Tangible Real Account (B) Intangible Real Account
(C) Nominal Account (D) None of these

5. Debit all .............. .

(A) expenses and losses (B) incomes and gains
(C) expenses and revenue (D) losses and gains

IV. STATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE [1 MARK EACH]
1. Under Double Entry System, one is the receiver of the benefit and the other is the
giver of benefit.
2. Arithmetical accuracy is not guaranteed and definite under double entry book keeping
system.
3. Every transaction has only one effect.
4. Single Entry System is suitable to small scale business.
5. Every debit has an equal and corresponding credit.
6. The law gives recognition to Conventional Accounting System.
7. Debit the Receiver and Credit the Giver; is the rule applicable to Personal Account.
8. Personal transactions of proprietor are recorded in the books of account of business.
9. An order placed for the goods, entry is passed / recorded in the books of accounts.
10. Accounting Equation signifies that the capital and liabilities of the business are
always equal.
11. Prepaid insurance is a Nominal Account.
12. Loan Account is Personal Account.
13. Drawings Account is a Real Account.

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14. Commission received is a Nominal Account.

15. Outstanding wages is a Nominal Account.
16. Bank of India is an example of Real Account.
17. IFRS stands for Indian Financial Recording Standard.
Ans 1. True 2. False 3. False 4. True
5. True 6. False 7. True 8. False
9. False 10. False 11. False 12. True
13. False 14. True 15. False 16. False
17. False

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