Debit and Credit Ledger selection on payment of Security Deposit

Sometimes,Business units give Security Deposit to Individuals/corporate for using their property like Land,Building,Machinery etc.

Now let's take an example for better understanding on Debit and Credit Ledger selection when Security Deposit is paid.

Example of a transaction when security deposit is paid.

In the Books of Mr.Sanjay Gupta

Amount paid to Mr. Rakesh Das towards Security Deposit for Office and Godown Rent for ₹50,000/- vide Cheque No-890102 of of Indian Bank Current A/c.

Steps and Procedures for Decision making for Debiting and Crediting of Ledger Accounts of the above transaction.

Step - 1

In first step,we have to identify Ledger Accounts involved in the above transaction.

As a result we are able to find two Ledger Accounts.

One is Mr. Rakesh Das - Security Deposit for Rent A/c,and another is Indian Bank Current A/c

Debit and Credit Ledger on Payment of Security Deposit by Cheque

Step - 2

In second step, our task is to find out the Type of Ledger Accounts involved by using either one of the Accounting Approach.

The above two Ledger Accounts mentioned in step-1 are related to type

Personal Account(Mr. Rakesh Das - Security Deposit for Rent A/c) and Real Account(Indian Bank Current A/c) in Traditional Approach.

Asset Account(Mr. Rakesh Das - Security Deposit for Rent A/c) and Asset Account(Indian Bank Current A/c) in Modern Approach.

Type of Accounts involved on Payment of Security Deposit by Cheque

Step - 3

In third step,we have to look at the nature or flow of the Ledger Accounts involved by using either one of the Accounting Approach.

Mr. Rakesh Das - Security Deposit for Rent A/c is the receiver and Indian Bank Current A/c goes out from the business in Traditional Approach.

Mr. Rakesh Das - Security Deposit for Rent A/c(Asset Account) increases and Indian Bank Current A/c(Asset Account) decreases in Modern Approach.

Flow of Ledger Accounts on Payment of Security Deposit by Cheque
Step - 4

In fourth and final step,now it is time to place the Ledger Accounts in their respective column, i.e Debit Column or Credit Column by applying the Debit and Credit Rule using either one of the Accounting Approach.

Debit and Credit Rule
As a result,Mr. Rakesh Das - Security Deposit for Rent A/c shows a Debit effect for ₹50,000/- and 

Indian Bank Current A/c shows a Credit effect for ₹50,000/- 

Security Deposit paid by Cheque

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Location: Bhubaneswar, Odisha, India

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