Explain the double entry mechanism with an illustrative examine.
Answers
"Every transaction is recorded in two accounts in double entry mechanism. It is assured that the total amount debited is equal to the total amount credited while recording the transaction in double entry.
Due to this entry aspect, a simple account appears in the form of T- account. the increase and decrease of an item are recorded on the left and right sides in this format.
The left side is known as debit ( abbreviated as Dr.) and the right side is known as credit( abbreviated as Cr.) in the T- account.
The final entry of an item is ensured by the double entry at the end of the accounting period.Under mentioned rules are taken into consideration while recording a transaction into an account.
Assets or Expenses/ losses:
1. Increase is debited
2. The decrease is credited.
Liabilities/Capital/Revenue or Gains:
1. Increase in credited
2. Decrease in debited
An example to explain it better is
Arjun started a business with cash of Rs. 5,00,000.
Analysis of Transaction:
The transaction increased capital on one hand and the cash, on the other hand, .increased in assets and capital is credited.
Therefore we have to record the transaction with debit to cash account and credit to Arjun’s capital.
Cash Account:
Debit Credit
5,00,000
Capital Account:
Debit Credit
5,00,000
"