Accounting basics:

a) Expense: It is a cost incurred during an accounting period in

order to earn revenue.
b) Income: Income is increase in economic benefits during the
accounting period in the form of inflows of assets or decrease of
liabilities that result in increase in equity other than those relating
to fresh contribution from equity participants.
c) Liability: It is a present obligation of the factors arising from
past events the settlement of which is expected to result in an
outflow from the enterprise of resources embodying economic
benefits.
d) Asset: An asset is a resource controlled by the enterprise as a
result of past events and from which future economic benefits
are expected to flow to the enterprise.
e) BRS or Bank Reconciliation Statement: A BANK
RECONCILIATION STATEMENT may be defined as a statement
showing the items of differences between the cash Book
balance and the pass book balance, prepared on any day for
reconciling the two balances.
f) Pass Book: Pass Book is a book issued by Bank to an
accountholder.
g) Cash Book: Cash book is a subsidiary book which records the
receipts and payment of cash.
h) Petty Cash Book: A business house makes a number of small
payments like telegram, textiles, cartage etc. If all these
transactions are recorded in cash book the cash bank may
become bulky and the main cashier’s work will also increase
therefore usually firms appoint a petty cashier who makes these
small payments and keep record of these payments in a
separate cash book which is called Petty Cash book.
i) Journal: is a record that keeps accounting transactions in
chronological order, i.e. as they occur.
j) Ledger: is a record that keeps accounting transactions.
k) Journal entry: is an entry to the journal.
l) E.g. for Journal Entries:
I. For Purchases: Dr. Purchases A/c and Cr. Sundry
Creditors [or Cash/Bank A/cin case of Cash purchases]
II. For Sales: Dr. Sundry Debtors A/c[or Cash A/c in case of
Cash Sales] and Cr. Sales A/c
III. For Expenditure incurred: Dr. Expenses A/c and Cr.
Cash/Bank A/c.
IV. For receipt of amount: Dr. Cash/Bank A/c and Cr. Sundry
debtors A/c.
Golden rules of Accounting:
REAL ACCOUNTS: Debit what comes in.
Credit what goes out.
E.g. Purchase of Fixed Asset: Dr. Fixed Asset A/c and
Cr. Cash Account.

NOMINAL ACCOUNTS: Debit all expenses and losses.

Credit all incomes and gains.
E.g. Rent paid: Dr. Rent A/c and Cr. Cash or Bank A/c.

PERSONAL ACCOUNTS: Debit the receiver of benefit.

Credit the giver of benefit.
E.g. Loan recd. from Mr. X: Dr. Cash & Bank A/c and Cr.
Mr. X A/c.