Cash Memo
When a trader sells goods for cash, he gives a cash memo and when he purchases goods for cash, he receives a cash memo.
Invoice or Bill
When a trader sells goods on credit, he prepares a sale invoice. It contains full details relating to the amount, the terms of payment and the name and address of the seller and buyer. The original copy of the sale invoice is sent to the purchaser and its duplicate copy is kept for making records in the books of accounts.
Similarly, when a trader purchases goods on credit, he receives a credit bill from the supplier of goods.
Receipt
When a trader receives cash from a customer, he issues a receipt containing the date, the amount and the name of the customer. The original copy is handed over to the customer and the duplicate copy is kept for record.
In the same way, whenever we make payment, we obtain a receipt from the party to whom we make payment.
Debit Note
A debit note is prepared by the buyer and it contains the date off of the goods returned, a name of the supplier, details of the goods returned and reasons for returning the goods. Each debit note is serially numbered. A duplicate copy or counterfoil of the debit note is retained by the buyer. On the basis of debit note, the supplier's account is debited in the books.
Credit Note
A credit note is prepared by the seller and it contains the date on which goods are returned, name of the customer, details of the goods received back, amount of such goods and reasons for returning the goods. Each credit note is serially numbered. A duplicate copy of the credit note is retained for the record purpose. On the basis of credit note, the customer’s account is credited in the books.
Pay-in-slip
Pay-in-slip is a form available in banks and is used to deposit money into a bank account. Each pay-in-slip has a counterfoil which is returned to the depositor duly sealed and signed by the bank official. This source document relates to bank transactions. It gives details regarding date, account number, the amount deposited (in cash or cheque) and a name of the account holder.
Cheque
A cheque is a document in writing drawn upon a specified banker to pay a specified sum to the bearer or the person named in it and payable on demand. Each chequebook has a counterfoil in which the same details in the cheque are filled. The counterfoil remains with the account holder for his future reference. The counterfoil forms the source document for entries to be made in the books of accounts.
Vouchers
A voucher is a written document in support of a business transaction. Vouchers are prepared by an accountant and each voucher is countersigned by an authorised person of the organisation.
Accounting Equation
The accounting equation is based on dual aspect concept (Debit and Credit). It emphasizes on the fact that every transaction has a two-sided effect i.e., on the assets and claims on assets.
Always the total claims (those of outsiders and of the proprietors) will be equal to the total assets of the business concern. The claims are also known as equities, are of two types:
Assets = Capital + Liabilities (A = C+L)
Capital = Assets – Liabilities (C = A–L)
Liabilities = Assets – Capital (L = A–C)
Rules for Debiting and Crediting
The rules may be summarised as below :-
Increases in assets are debits;
decreases in assets are credits.
Increases in capital are credits;
decreases in capital are debits.
Increases in liabilities are credits;
decreases in liabilities are debits.
Increases in incomes and gains are credits;
decreases in incomes and gains are debits.
Increases in expenses and losses are debits;
decreases in expenses and losses are credits.
In the traditional approach, all the accounts are classified into the following three types.
1. Personal Accounts – a) Debit the receiver
b) Credit the giver
2. Real Accounts – a) Debit what comes in
b) Credit what goes out
3. Nominal Accounts – a) Debit all expenses and losses
b) Credit all incomes and gains
When a trader sells goods for cash, he gives a cash memo and when he purchases goods for cash, he receives a cash memo.
Invoice or Bill
When a trader sells goods on credit, he prepares a sale invoice. It contains full details relating to the amount, the terms of payment and the name and address of the seller and buyer. The original copy of the sale invoice is sent to the purchaser and its duplicate copy is kept for making records in the books of accounts.
Similarly, when a trader purchases goods on credit, he receives a credit bill from the supplier of goods.
Receipt
When a trader receives cash from a customer, he issues a receipt containing the date, the amount and the name of the customer. The original copy is handed over to the customer and the duplicate copy is kept for record.
In the same way, whenever we make payment, we obtain a receipt from the party to whom we make payment.
Debit Note
A debit note is prepared by the buyer and it contains the date off of the goods returned, a name of the supplier, details of the goods returned and reasons for returning the goods. Each debit note is serially numbered. A duplicate copy or counterfoil of the debit note is retained by the buyer. On the basis of debit note, the supplier's account is debited in the books.
Credit Note
A credit note is prepared by the seller and it contains the date on which goods are returned, name of the customer, details of the goods received back, amount of such goods and reasons for returning the goods. Each credit note is serially numbered. A duplicate copy of the credit note is retained for the record purpose. On the basis of credit note, the customer’s account is credited in the books.
Pay-in-slip
Pay-in-slip is a form available in banks and is used to deposit money into a bank account. Each pay-in-slip has a counterfoil which is returned to the depositor duly sealed and signed by the bank official. This source document relates to bank transactions. It gives details regarding date, account number, the amount deposited (in cash or cheque) and a name of the account holder.
Cheque
A cheque is a document in writing drawn upon a specified banker to pay a specified sum to the bearer or the person named in it and payable on demand. Each chequebook has a counterfoil in which the same details in the cheque are filled. The counterfoil remains with the account holder for his future reference. The counterfoil forms the source document for entries to be made in the books of accounts.
Vouchers
A voucher is a written document in support of a business transaction. Vouchers are prepared by an accountant and each voucher is countersigned by an authorised person of the organisation.
Accounting Equation
The accounting equation is based on dual aspect concept (Debit and Credit). It emphasizes on the fact that every transaction has a two-sided effect i.e., on the assets and claims on assets.
Always the total claims (those of outsiders and of the proprietors) will be equal to the total assets of the business concern. The claims are also known as equities, are of two types:
- Owners equity (Capital);
- Outsiders’ equity (Liabilities).
Assets = Capital + Liabilities (A = C+L)
Capital = Assets – Liabilities (C = A–L)
Liabilities = Assets – Capital (L = A–C)
Rules for Debiting and Crediting
The rules may be summarised as below :-
Increases in assets are debits;
decreases in assets are credits.
Increases in capital are credits;
decreases in capital are debits.
Increases in liabilities are credits;
decreases in liabilities are debits.
Increases in incomes and gains are credits;
decreases in incomes and gains are debits.
Increases in expenses and losses are debits;
decreases in expenses and losses are credits.
In the traditional approach, all the accounts are classified into the following three types.
- Personal Accounts
- Real Accounts
- Nominal Accounts
1. Personal Accounts – a) Debit the receiver
b) Credit the giver
2. Real Accounts – a) Debit what comes in
b) Credit what goes out
3. Nominal Accounts – a) Debit all expenses and losses
b) Credit all incomes and gains
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