Accounting Basics for Beginners: Debit, Credit, Journal and Ledger

Key takeaways

Every transaction affects at least two accounts, and total debits always equal total credits.
Golden rules: Personal — debit the receiver, credit the giver; Real — debit what comes in, credit what goes out; Nominal — debit expenses and losses, credit incomes and gains.
The flow is Journal → Ledger → Trial Balance → Trading and P&L → Balance Sheet.
Closing stock, drawings and GST are the three places beginners most often go wrong.

Accounting looks difficult because of its vocabulary — debit, credit, journal, ledger, trial balance. Underneath, it is one simple idea: every transaction affects at least two accounts, and the two sides always balance. This guide follows one small business through a month of transactions, from journal entries to a balance sheet, so you can see every step and check every number yourself.

It is written for Class 12 students, Tally learners and anyone starting an accounts job. All names and figures are fictional practice data. GST is left out of the main example to keep the logic clear; a GST entry is shown separately near the end.

Key terms in plain language

Term	Meaning	Example
Transaction	Any business event involving money or money's worth	Buying goods, paying rent
Account	A record of all transactions with one person, asset, income or expense	Cash A/c, Rent A/c, Suresh Traders A/c
Debit (Dr)	The left side of an account	Cash received is debited to Cash A/c
Credit (Cr)	The right side of an account	Cash paid is credited to Cash A/c
Capital	Money the owner puts into the business	₹1,00,000 brought in to start
Drawings	Money or goods the owner takes for personal use	₹2,000 cash for home expenses
Debtor (Sundry Debtor)	Someone who owes the business money	Customer who bought on credit
Creditor (Sundry Creditor)	Someone the business owes money to	Supplier who sold on credit
Assets	What the business owns	Cash, bank, furniture, stock, debtors
Liabilities	What the business owes	Creditors, loans, capital (owed to the owner)

"Debit" and "credit" do not mean good or bad. They are simply the two sides of an account.

The accounting equation

Everything in accounting rests on this equation:

Assets = Liabilities + Capital

If Ravi starts a shop with ₹1,00,000 cash, the shop has an asset (cash ₹1,00,000) and owes it to the owner (capital ₹1,00,000). If he then buys furniture for ₹15,000 cash, one asset falls and another rises — the equation still balances. Every correct entry keeps this equation true.

The three types of accounts and the golden rules

Traditional Indian accounting teaching (used in most school textbooks and Tally courses) classifies accounts into three types, each with its own rule.

Type	Includes	Golden rule
Personal	People, firms, banks, capital, drawings	Debit the receiver, credit the giver
Real	Assets: cash, furniture, machinery, buildings, goods	Debit what comes in, credit what goes out
Nominal	Expenses, losses, incomes, gains: rent, salary, sales, commission	Debit all expenses and losses, credit all incomes and gains

The modern (accounting equation) rules

Many textbooks also teach the same logic through the equation. Both approaches give the same entries.

Account type	Increase	Decrease
Assets	Debit	Credit
Expenses and losses	Debit	Credit
Liabilities	Credit	Debit
Capital	Credit	Debit
Incomes and gains	Credit	Debit

A four-question method for any transaction

Which two (or more) accounts are affected?
What type is each account — personal, real or nominal?
Apply the rule to each: which side does it go?
Check: total debits equal total credits.

The practice business: Ravi Mobile Accessories, April 2026

No.	Date	Transaction
1	1 Apr	Ravi started the business with cash ₹1,00,000
2	2 Apr	Deposited ₹60,000 cash into the bank
3	3 Apr	Bought goods on credit from Suresh Traders ₹40,000
4	5 Apr	Bought furniture by cheque ₹15,000
5	8 Apr	Sold goods for cash ₹25,000
6	10 Apr	Sold goods on credit to Meena Stores ₹18,000
7	15 Apr	Paid shop rent in cash ₹8,000
8	20 Apr	Paid Suresh Traders ₹30,000 by cheque
9	25 Apr	Received ₹10,000 cash from Meena Stores
10	30 Apr	Paid salary to helper in cash ₹6,000
11	30 Apr	Ravi withdrew ₹2,000 cash for personal use

Step 1: Journal entries

The journal is the book of first entry: every transaction is recorded here in date order, showing the debit account, the credit account and a short explanation called the narration.

No.	Entry	Dr (₹)	Cr (₹)	Rule applied
1	Cash A/c Dr To Capital A/c	1,00,000	1,00,000	Cash comes in (real); owner is the giver (personal)
2	Bank A/c Dr To Cash A/c	60,000	60,000	Bank receives (personal); cash goes out (real)
3	Purchases A/c Dr To Suresh Traders A/c	40,000	40,000	Goods come in; Suresh is the giver
4	Furniture A/c Dr To Bank A/c	15,000	15,000	Furniture comes in; bank is the giver
5	Cash A/c Dr To Sales A/c	25,000	25,000	Cash comes in; goods go out (sales)
6	Meena Stores A/c Dr To Sales A/c	18,000	18,000	Meena is the receiver; goods go out
7	Rent A/c Dr To Cash A/c	8,000	8,000	Expense debited; cash goes out
8	Suresh Traders A/c Dr To Bank A/c	30,000	30,000	Suresh is the receiver; bank is the giver
9	Cash A/c Dr To Meena Stores A/c	10,000	10,000	Cash comes in; Meena is the giver
10	Salary A/c Dr To Cash A/c	6,000	6,000	Expense debited; cash goes out
11	Drawings A/c Dr To Cash A/c	2,000	2,000	Owner is the receiver; cash goes out

A full journal entry is written with a narration, for example: Cash A/c Dr 1,00,000, To Capital A/c 1,00,000 (Being business started with cash).

Why "Purchases" and "Sales", not "Goods"?

Goods bought for resale are recorded in a Purchases account and goods sold in a Sales account, instead of one Goods account. This makes it easy to see total buying and selling for the period. Furniture bought for use in the shop is an asset, so it goes to Furniture A/c, not Purchases.

Step 2: Post to ledger accounts

The ledger collects all entries for one account in one place, so you can see its balance. Here is the Cash account in the traditional T-format:

Dr — Cash Account		Cr
1 Apr To Capital	1,00,000	2 Apr By Bank	60,000
8 Apr To Sales	25,000	15 Apr By Rent	8,000
25 Apr To Meena Stores	10,000	30 Apr By Salary	6,000
		30 Apr By Drawings	2,000
		30 Apr By Balance c/d	59,000
Total	1,35,000	Total	1,35,000

Debit side 1,35,000; credit payments 76,000; so the closing balance carried down (c/d) is 1,35,000 − 76,000 = ₹59,000 Dr. Cash in hand can never have a credit balance — if it does, an entry is wrong.

All closing balances

Account	Working	Balance
Cash	1,35,000 − 76,000	59,000 Dr
Bank	60,000 − 15,000 − 30,000	15,000 Dr
Capital	—	1,00,000 Cr
Purchases	—	40,000 Dr
Suresh Traders	40,000 Cr − 30,000 Dr	10,000 Cr
Furniture	—	15,000 Dr
Sales	25,000 + 18,000	43,000 Cr
Meena Stores	18,000 Dr − 10,000 Cr	8,000 Dr
Rent	—	8,000 Dr
Salary	—	6,000 Dr
Drawings	—	2,000 Dr

Step 3: Trial balance

A trial balance lists every ledger balance. If total debits equal total credits, the double entry has been done arithmetically correctly.

Account	Dr (₹)	Cr (₹)
Cash	59,000
Bank	15,000
Purchases	40,000
Furniture	15,000
Meena Stores	8,000
Rent	8,000
Salary	6,000
Drawings	2,000
Capital		1,00,000
Suresh Traders		10,000
Sales		43,000
Total	1,53,000	1,53,000

A balanced trial balance is not proof of no errors

It will still balance if you forgot a transaction completely, entered the wrong amount on both sides, or debited the wrong account of the same type (for example Rent instead of Salary). That is why accountants also check source documents and bank statements.

Step 4: Final accounts

At the end of the month, Ravi counts his unsold goods: they cost ₹12,000. This closing stock is needed to work out profit, because not all purchased goods were sold.

Trading account — gross profit

Sales                                   43,000
Less: Cost of goods sold
      Purchases               40,000
      Less: Closing stock     12,000    28,000
                                       -------
Gross profit                            15,000

Profit and loss account — net profit

Gross profit                            15,000
Less: Rent                     8,000
      Salary                   6,000    14,000
                                       -------
Net profit                               1,000

Balance sheet as on 30 April 2026

Liabilities	₹	Assets	₹
Capital 1,00,000 Add: Net profit 1,000 Less: Drawings 2,000	99,000	Furniture	15,000
Sundry creditors (Suresh Traders)	10,000	Closing stock	12,000
		Sundry debtors (Meena Stores)	8,000
		Cash at bank	15,000
		Cash in hand	59,000
Total	1,09,000	Total	1,09,000

Both sides equal ₹1,09,000, so the accounting equation holds: Assets 1,09,000 = Liabilities 10,000 + Capital 99,000. Note that drawings reduce capital; they are not a business expense and do not reduce profit.

How GST changes a journal entry

When a registered business sells goods worth ₹10,000 plus 18% GST within the same state, the customer pays ₹11,800. The tax collected is not the business's income — it is owed to the government.

Entry	Dr (₹)	Cr (₹)
Customer A/c Dr	11,800
To Sales A/c		10,000
To Output CGST A/c (9%)		900
To Output SGST A/c (9%)		900
Total	11,800	11,800

On a purchase, the GST paid is debited to Input CGST and Input SGST (input tax credit), which can later be set off against output tax. For an inter-state transaction, a single IGST account replaces CGST and SGST. The rate of 18% is used here only as an example; actual rates depend on the item. For hands-on GST entries in software, follow TallyPrime with GST step by step.

Books of accounts used in real businesses

In practice, businesses do not write every transaction in one general journal. They use subsidiary books — separate books for transactions that repeat often — and the general journal only for the rest. Software like Tally does the same thing through voucher types.

Book	What is recorded	Example from Ravi's month	Tally voucher
Cash book	All cash and bank receipts and payments	Transactions 1, 2, 4, 5, 7, 8, 9, 10, 11	Payment (F5), Receipt (F6), Contra (F4)
Purchases book	Credit purchases of goods for resale	Transaction 3	Purchase (F9)
Sales book	Credit sales of goods	Transaction 6	Sales (F8)
Purchase returns / sales returns books	Goods sent back to suppliers or returned by customers	None this month	Debit Note (Ctrl+F9), Credit Note (Ctrl+F8)
Journal proper	Everything else: opening entries, adjustments, depreciation, corrections	None this month; for example, a correction or depreciation at year-end	Journal (F7)

Cash sales (transaction 5) appear in the cash book because cash is received; in Tally they are usually entered as a sales voucher with Cash as the party. Transaction 2 is a contra entry — both sides are cash and bank — which is why Tally has a separate Contra voucher for it.

Source documents behind every entry

No entry should be made without a document: a purchase bill for purchases, a sales invoice for sales, a receipt or bank statement for payments, a rent agreement or receipt for rent, and a salary register for wages. File each document with its voucher number written on it. When an auditor or GST officer asks "why was this entry made?", the document is your answer.

Common beginner mistakes

Mistake	Correct treatment
Debiting Purchases for furniture or a computer bought for office use	Debit the asset account (Furniture, Computer)
Treating drawings as an expense	Drawings reduce capital in the balance sheet
Crediting Sales for money received from an old debtor	Credit the debtor's account; the sale was recorded earlier
Forgetting closing stock	Profit will be understated; count stock at period end
Recording GST collected as income	Credit Output GST ledgers, a liability
Cash showing a credit balance	Impossible in reality; find the wrong or missing entry

Practice set with answers

Write the journal entry for each, then check.

Paid electricity bill ₹1,500 by UPI from the bank. Answer: Electricity A/c Dr 1,500, To Bank A/c 1,500.
Bought a computer for the office for ₹35,000 on credit from Sri Computers. Answer: Computer A/c Dr 35,000, To Sri Computers A/c 35,000.
Received commission ₹2,000 in cash. Answer: Cash A/c Dr 2,000, To Commission Received A/c 2,000.
Owner took goods costing ₹1,000 for home use. Answer: Drawings A/c Dr 1,000, To Purchases A/c 1,000.
Withdrew ₹5,000 from the bank for office use. Answer: Cash A/c Dr 5,000, To Bank A/c 5,000 (a contra entry).

Once these feel natural, software such as Tally becomes much easier, because every voucher is a journal entry with a friendlier screen. For roles that use these skills, read the Tally career guide. The Tally With GST course at Nipun India partner centers includes a full module on fundamentals of accounting before moving to software.

Frequently asked questions

What are the golden rules of accounting?

For personal accounts, debit the receiver and credit the giver. For real accounts, debit what comes in and credit what goes out. For nominal accounts, debit all expenses and losses and credit all incomes and gains.

What is the difference between a journal and a ledger?

The journal records every transaction in date order as it happens. The ledger groups those entries by account, so you can see the balance of each account such as cash, a customer or rent.

Why does a trial balance not tally?

Common reasons are an amount posted on only one side, a wrong amount on one side, a balance carried to the wrong column or an addition error. Check postings from the journal to each ledger one by one.

Is drawings an expense?

No. Drawings are money or goods taken by the owner for personal use. They reduce the owner's capital in the balance sheet and do not reduce business profit.

Do I need to learn accounting before Tally?

Yes, the basics. Tally records vouchers quickly, but you still need to know which ledger to use and which group it belongs to. Understanding debit and credit prevents most errors in Tally.

Official sources & further reading

Government portals change their rules, fees and steps from time to time. Always confirm current details on the official website before you apply.

Nipun India Academic Team writes and reviews Learning Center guides using the same syllabus our training centers teach. First published 10 Oct 2026, last reviewed 10 Oct 2026. Read our editorial policy or report a correction.