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Accounting Guide

Accounting Equation

Assets = Liabilities + Equity

Dr / Cr Rule

Type	Increases	Decreases
Assets	Dr ↑	Cr ↓
Expenses	Dr ↑	Cr ↓
Liabilities	Cr ↑	Dr ↓
Equity	Cr ↑	Dr ↓
Revenue	Cr ↑	Dr ↓

Golden Rules

Account	Debit	Credit
Personal	Receiver	Giver
Real	Comes In	Goes Out
Nominal	Exp & Loss	Income & Gain

Key Rules

✔	Total Debit = Total Credit always
✔	Every entry needs ≥ 2 accounts
✔	Profit increases Capital
✔	Loss decreases Capital
✔	Closing stock is an asset
✔	Drawings reduce Capital

Accounting Periods (India)

FY	1 Apr – 31 Mar
Q1	Apr – Jun
Q2	Jul – Sep
Q3	Oct – Dec
Q4	Jan – Mar

Accounting Cycle

1	Source Document
2	Journal Entry
3	Post to Ledger
4	Trial Balance
5	Adjusting Entries
6	Financial Statements
7	Closing Entries

Account Types

Type	Examples
Assets	Cash, Bank, Debtors, Stock, Land, Machinery
Liabilities	Creditors, Loans, GST Payable, O/S Expenses
Equity	Capital, Retained Earnings, Drawings (–)
Revenue	Sales, Service Income, Discount Received
Expense	Rent, Salary, Purchase, Depreciation

Current vs Fixed Assets

Current	Fixed
Cash, Bank	Land, Building
Stock / Inventory	Machinery
Debtors / AR	Furniture
Prepaid Expenses	Vehicles
TDS Receivable	Computers

Common Ledger Heads

Purchase A/c	Expense
Sales A/c	Revenue
CGST / SGST / IGST	Liability / Asset
TDS Payable	Liability
TDS Receivable	Asset
Salary A/c	Expense
Rent A/c	Expense
Depreciation A/c	Expense
Drawings A/c	Equity (–)
Capital A/c	Equity

Debtors vs Creditors

Debtor (AR)	Creditor (AP)
Customer owes you	You owe supplier
Asset	Liability
Dr on Invoice	Cr on Bill

Depreciation Methods

Method	Note
SLM	Fixed % on cost every year
WDV	% on reducing book value (IT Act)
Units of Production	Based on actual usage

WDV is mandated under Income Tax Act, India. Companies Act allows SLM or WDV.

Voucher Types

Type	When to Use
Sales	Invoice raised to customer
Purchase	Bill received from supplier
Receipt	Money received (cash/bank)
Payment	Money paid out
Contra	Cash ↔ Bank transfers
Journal	Adjustments, depreciation, provisions
Credit Note	Sales return / discount given
Debit Note	Purchase return / discount received

Journal Entry Format

Date
[Account A] Dr	₹ XXX
To [Account B] Cr	₹ XXX
(Narration)

Common Entries

Transaction	Entry
Start business	Cash Dr / To Capital Cr
Buy goods (cash)	Purchase Dr / To Cash Cr
Buy goods (credit)	Purchase Dr / To Supplier Cr
Sell goods (cash)	Cash Dr / To Sales Cr
Sell goods (credit)	Customer Dr / To Sales Cr
Pay rent	Rent Dr / To Cash Cr
Pay salary	Salary Dr / To Cash Cr
Receive payment	Cash Dr / To Customer Cr
Pay supplier	Supplier Dr / To Bank Cr
Cash to bank	Bank Dr / To Cash Cr
Depreciation	Depreciation Dr / To Asset Cr
Bad debt	Bad Debt Dr / To Debtor Cr
Owner withdraws	Drawings Dr / To Cash Cr
Loan taken	Bank Dr / To Loan Cr
Loan repaid	Loan Dr / To Bank Cr
Interest on loan	Interest Dr / To Bank Cr

Credit Note vs Debit Note

	Credit Note	Debit Note
Issued by	Seller	Buyer
Reason	Sales return / overcharge	Purchase return / undercharge
GST Impact	Reduce Output GST	Reduce Input GST

GST Structure (India)

Tax	Applies When
CGST	Intra-state (Central share)
SGST	Intra-state (State share)
IGST	Inter-state or Import/Export
UTGST	Union Territories instead of SGST

Intra-state: CGST + SGST = total GST rate. Inter-state: IGST = total GST rate.

Common GST Rates

Rate	Examples
0%	Fresh food, milk, books, exports
5%	Edible oil, sugar, packed food
12%	Processed food, business class air
18%	Most services, electronics, IT software
28%	Luxury, cars, tobacco, cement

GST Journal Entries

Transaction	Entry
Sales + GST	Customer Dr / To Sales Cr + CGST/SGST Cr
Purchase + GST	Purchase Dr + CGST/SGST Dr / To Supplier Cr
GST Payment	CGST/SGST Payable Dr / To Bank Cr
ITC Set-off	CGST Payable Dr / To CGST Input Cr

Input Tax Credit (ITC)

Eligible	Goods/services used for business
Not Eligible	Personal use, food, club, rent-a-cab
Set-off Order	IGST first → CGST → SGST
Condition	Supplier must file GSTR-1

GST Returns

Return	Who	Due Date
GSTR-1	All regular	11th of next month
GSTR-3B	All regular	20th of next month
GSTR-4	Composition	30 Apr (annual)
GSTR-9	Annual return	31 Dec of next FY
GSTR-9C	Turnover >₹5Cr	31 Dec (reconciliation)

Composition Scheme

Eligible	Turnover < ₹1.5 Cr (goods)
Services	< ₹50 L (restaurants allowed)
Tax Rate	1% (traders), 5% (restaurants), 6% (services)
No ITC	Cannot claim input credit
No interstate	Cannot sell outside state

GST Registration

Mandatory	Turnover > ₹40L (goods) / ₹20L (services)
Special States	> ₹20L (goods) / ₹10L (services)
Voluntary	Allowed below threshold
E-commerce	Mandatory regardless of turnover

What is TDS?

Tax Deducted at Source — deducted by payer before making payment. Deposited to govt on behalf of payee.

Common TDS Sections

Section	On	Rate	Threshold
192	Salary	Slab rate	Basic exemption
194A	Interest (Bank)	10%	₹40,000
194C	Contractor	1%/2%	₹30,000 / ₹1L
194H	Commission	5%	₹15,000
194I	Rent	2%/10%	₹2,40,000
194J	Professional fees	10%	₹30,000
194Q	Purchase of goods	0.1%	₹50L/year
194IA	Property purchase	1%	₹50L

TDS Journal Entries

Transaction	Entry
Pay professional (TDS deducted)	Professional Fees Dr / To TDS Payable Cr / To Bank Cr
Receive payment (TDS deducted by client)	Bank Dr + TDS Receivable Dr / To Revenue Cr
Deposit TDS to govt	TDS Payable Dr / To Bank Cr

TDS Due Dates

Monthly deposit	7th of next month
March deposit	30th April
Q1 Return (26Q)	31 July
Q2 Return	31 Oct
Q3 Return	31 Jan
Q4 Return	31 May
Form 16 / 16A	15 Jun (salary) / 15 days from due date

TDS vs TCS

	TDS	TCS
Full form	Tax Deducted at Source	Tax Collected at Source
Who deducts	Payer	Seller
When	On payment	On collection
Example	Salary, rent, fees	Sale of scrap, minerals

Trial Balance

Purpose	Check Dr = Cr after all postings
Debit side	Assets, Expenses, Losses
Credit side	Liabilities, Equity, Revenue
Errors NOT caught	Compensating, omission, wrong account

Profit & Loss A/c

Revenue	Sales + Other Income
(–) COGS	Opening Stock + Purchases – Closing Stock
= Gross Profit
(–) Operating Exp	Rent, Salary, Depreciation etc.
= Net Profit	Transferred to Capital / Retained Earnings

Balance Sheet Structure

Assets (Uses)	Liabilities + Equity (Sources)
Fixed Assets	Share Capital
Current Assets	Reserves & Surplus
Investments	Long-term Loans
Misc. Assets	Current Liabilities

Cash Flow Statement

Section	Includes
Operating	Day-to-day business (collections, payments)
Investing	Buy/sell assets, investments
Financing	Loans, capital, dividends

Ledger

Format	T-Account: Dr left, Cr right
Balance	Difference between Dr and Cr totals
Closing	"By Balance c/d" → "To Balance b/d"

Useful Formulas

Gross Profit	Net Sales – COGS
COGS	Opening Stock + Purchases – Closing Stock
Net Profit	Gross Profit – Operating Expenses
Working Capital	Current Assets – Current Liabilities
Capital	Assets – Liabilities
GP Ratio	(GP / Net Sales) × 100
NP Ratio	(NP / Net Sales) × 100

Business Start

Cash Dr	₹1,00,000
To Capital Cr	₹1,00,000
Owner starts business with cash

Credit Purchase with GST (18%)

Purchase Dr	₹10,000
CGST Input Dr	₹900
SGST Input Dr	₹900
To Supplier Cr	₹11,800
Intra-state purchase from XYZ

Credit Sales with GST (18%)

Customer Dr	₹11,800
To Sales Cr	₹10,000
To CGST Payable Cr	₹900
To SGST Payable Cr	₹900
Intra-state sale to ABC

GST Payment (after ITC set-off)

CGST Payable Dr	₹900
To CGST Input Cr	₹900
SGST Payable Dr	₹900
To SGST Input Cr	₹900
ITC fully set off — nil cash payment

TDS on Professional Fees

Professional Fees Dr	₹10,000
To TDS Payable Cr	₹1,000
To Bank Cr	₹9,000
Paid CA fees ₹10,000; TDS @10% deducted

Salary with TDS

Salary Dr	₹50,000
To TDS Payable Cr	₹5,000
To Bank Cr	₹45,000
Salary paid; TDS @10% deducted u/s 192

Depreciation (SLM)

Depreciation Dr	₹5,000
To Machinery Cr	₹5,000
Annual depreciation on machine ₹50,000 @10%

Bad Debt Written Off

Bad Debt Dr	₹2,000
To Debtor Cr	₹2,000
Amount irrecoverable from customer

Liquidity Ratios

Ratio	Formula	Ideal
Current Ratio	Current Assets / Current Liabilities	2:1
Quick Ratio	(CA – Stock – Prepaid) / CL	1:1
Cash Ratio	Cash + Bank / CL	0.5:1

Profitability Ratios

Ratio	Formula
GP Ratio	(Gross Profit / Net Sales) × 100
NP Ratio	(Net Profit / Net Sales) × 100
ROE	(Net Profit / Equity) × 100
ROA	(Net Profit / Total Assets) × 100
ROCE	EBIT / Capital Employed × 100

Efficiency Ratios

Ratio	Formula
Debtor Turnover	Net Credit Sales / Avg Debtors
Creditor Turnover	Net Credit Purchases / Avg Creditors
Stock Turnover	COGS / Avg Stock
Debtor Days	365 / Debtor Turnover
Creditor Days	365 / Creditor Turnover
Stock Days	365 / Stock Turnover

Solvency Ratios

Ratio	Formula	Ideal
Debt-Equity	Total Debt / Shareholders' Equity	< 2
Interest Cover	EBIT / Interest Expense	> 3
Debt Ratio	Total Debt / Total Assets	< 0.5

Working Capital

Formula	Current Assets – Current Liabilities
Positive	Healthy — can pay short-term debts
Negative	Risky — may face liquidity issues
WC Cycle	Stock → Debtor → Cash → Stock

Layers

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