It signifies the receiving of benefit. In simple words it is the left hand
side. DEBIT is a record of an indebtedness; specifically an entry on the
left-hand side of an account constituting an addition to an expense or
asset account or a deduction from a revenue, net worth, or liability
It signifies the providing of a benefit. In simple words it is the right
hand side. CREDIT, in accounting, is an accounting entry system that
either decreases assets or increases liabilities; in general, it is an
arrangement for deferred payment for goods and services.
No business can run without money or resources
being invested therein.
Whatever money or resources from ones’ own pocket
are put in a business is referred to as CAPITAL.
Capital is the investment of the Owner in the business.
This capital or investment must earn a return or profit
on its use even if it is coming out of ones’ pocket.
This return is also known as PROFIT. So no capital
should be without a profit or a return
Mr. Rizwan Invests Rs. 200,000 to commence his
On 1st January, 1991 A Salman started business with a
capital of 250000 rs.????
On 1st January, 1991 A Salma started business with the
investment of 250000 rs.????
Assets are the properties and possessions of the
business to pay in future. Can be amount payable for
material purchased, expenses etc.
Properties and possessions can be of two types:
Tangible Assets that have physical existence
Intangible Assets that have no physical existence
Purchase building for cash
Purchase Furniture for cash 60000
Purchase goods for cash
Purchase equipment for cash 40000
Goods purchases for cash
Purchase goods from Rehman 40000
Sale goods to Rehman
Cash received from Rehman 36000
Goods purchased are called purchases. When the
goods are purchased for the cash they are the called
cash purchases but if they are purchased for which
payment will have to made at some future date it is
known as credit purchase.
Goods sold are called sales. When goods are sold for
cash they are called cash sales, but when they are sold
without having received payment they are credit sales.
Liabilities are the debts and obligations of the
business. Liability is the obligation of the business to
provide a benefit or asset on a future date.
Asset is a right to receive and liability is an obligation
to pay, therefore, these are opposite to each other.
He borrows Rs 100,000 from Mr. Saleem.
He pays 100000 to Mr. Saleem.
Expenses are the costs incurred to earn revenue.
In order to earn revenue, one has to spend some
money such as the cost of goods that are sold or the
money paid to the individuals who are providing
services plus other costs. These costs that are incurred
spent by the business to earn the revenue are the
expenses of the business.
Paid Electricity Bill
Paid salary to Usman.
Paid advertising expense,
Revenue means any type of income directly or
indirectly of the business.
Sold goods for cash
Cash received against rent 5000
Interest received from bank 4000
The cash or goods taken away by the proprietor from
the business for his personal use are called his
Cash withdrawn by the owner (Mr. Rizwan) 6000 Rs
Good taken by the Proprietor 2000rs.
Debtor (Account Receivable)
A person who owes money to another is a debtor.
When we say that we owe Mr. Rahim 200rs, which
means that we have received from Mr. Rahim 200rs,
which we have to repay.
We stand as debtor to Mr. Rahim for 200 Rs.
It is also termed as Account Receivable.
A person who pays out something or to whom money
is owing as a creditor. It is also termed as Account
A claim which can be enforced against the assets of the
firm is called equity,
In other words, the rights to proprietors are called
Equity are of two types
The Right of Creditors
The equities of creditors represent debts of the business
and are called liabilities.
The Right of Owners
The equities of the owners is called capital,
proprietorship or owner’s equity.
Mr. Salman started his Business with cash
Investment 20000 Rs.
05 Purchased merchandise (goods) for cash 500 Rs.
06 Sold Merchandise on cash 200.
08 Purchase Furniture on cash 5000.
10 Sold Merchandise on credit to Rashid 3000.
12 Paid Salaries 500 in cash
14 Received Cash from Rashid 1000rs as part