Explanation: Why Do We Study Accounts?

Imagine you're running a small tiffin service from home. Every day, you spend money on vegetables, oil, flour, pulses, and other ingredients to prepare healthy and tasty meals. At the end of the day, you want to know: how much did I spend? Did I earn a profit or face a loss? This is where accounting becomes your best friend. It helps you systematically track every rupee, allowing you to make informed decisions and grow your business with confidence. Let’s Start with the Basics of Accounting Literacy.

Types of Accounts & the Golden Rules of Accounting Accounting follows a simple structure based on three types of accounts. Each has its own set of rules—known as the Golden Rules of Accounting. Personal Accounts: These relate to individuals or organisations. Examples: Puja’s Account, Bank Account, Supplier Account, Customer Account

Rule: Debit the receiver, Credit the giver

Example: Paid ₹20,000 to Puja

• Puja A/c – Debit (Receiver of money)

• Cash A/c – Credit (Cash goes out.)

  
  

Real Accounts: These are accounts of things you can touch (tangible) or can't touch (intangible). Examples: Cash, Furniture, Building, Goodwill, Patent

Rule: Debit what comes in, Credit what goes out

Example: Bought furniture for ₹20,000

• Furniture A/c – Debit (What comes in)

• Cash A/c – Credit (What goes out)

  
  

Nominal Accounts: These record income, expenses, gains, and losses. Examples: Salary Paid, Rent Paid, Commission Received, Interest Received

Rule: Debit all expenses & losses, Credit all income & gains

Example: Paid ₹1,00,000 salary

• Salary A/c – Debit (Expense for the business)

• Cash A/c – Credit (Goes Out)

Terms	Meaning
Assets	What you own (Cash, Furniture, Building)
Liabilities	What you owe (Loans, Pending Bills)
Capital/Equity	Owner’s money invested in the business
Income	Earnings from sales or services
Expenses	Costs like salaries, electricity, and water

Two Key Reports You’ll Hear Often

• Profit & Loss Statement (P&L): Tells you if your business is earning or losing money.

• Balance Sheet: Shows your total wealth.

  Assets – Liabilities = Net Worth

  
  

A Simple Analogy to Understand Accounting. Think of accounting like your pocket diary:

• Page 1 → Money you received

• Page 2 → Money you spent

• End of the diary: You know if you saved or overspent

  
  

The only difference? In business, it’s done with rules so that everyone understands it the same way. Whether you're running a tiffin service or a tech startup, accounting helps you stay in control, make better decisions, and build a future you can trust.

This is just the beginning of your journey into accounting literacy. Keep exploring, keep learning—because every rupee tells a story, and you deserve to understand it.