How to account

As we all have seen that only financial transactions are only to be recorded in the books of accounts of a company. Now let's see how each and every transaction is recorded in the books of accounts as per the "Dual Entry System of Accounting".

How to account

Every transaction will have a dual effect in the books of accounts of a company, let's see how a transaction will have dual effect.
Here we apply the equivalent and opposite reaction concept to each transaction that takes place, like Newton's law of Gravity. So by making a trasaction, we give effect to two account balances under Dual Entry system of accounting.
Eg., Purchase of furniture by cash - a financial transaction as it involves exchange of monetary value between parties. In the above transaction, we understand that something of monetary value enters the company(i.e. Furniture) and another monetary item of same value goes out of the company(i.e. Cash).
From the above transaction, it would have been clear that each transaction will have dual effect in the books of accounts of a company.

All transactions are recorded based on the following accounting equation:
Increase in Assets/Expenses - Debit
Increase in Liabilities/Incomes - Credit
Decrease in Assets/Expenses - Debit
Decrease in Liabilities/Income - Credit
Based on the above accounting equation let's frame a Journal entry to give effect the transaction in the books of accounts of the company
Taking the same example above for the purpose of framing the Journal entry, it's clear that an asset (Furniture) has increased (i.e. furniture has entered the company) and another asset of equivalent value (Cash) has decreased (i.e. cash has gone out of the company). Therefore, being the asset coming in (i.e. Furniture) should be Debited with the purchase value and the asset which goes out (i.e. Cash) should be Credited. Thus the Journal entry for the transaction would be:
Date Particulars Dr. Cr.
Furniture A/c Dr. xxxx
To Cash A/c xxxx

Journal entry is an entry which is know as primary entry, based on this entry only the accounts mentioned will get affected, in the above case, the accounts affected are the "Furniture Account" And the "Cash Account".

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