Debit and Credit Ledger selection on Indirect Expenses

Let's select the Ledger Accounts involved in the below mentioned transaction.

In the Books of M/s.Sanjay Gupta

Purchased Office Stationery from M/s. Lily Stationery as per Cash Memo No-103 for ₹530/- on dated 02/04/2020 

Here,Office Stationery is not a manufacturing or trading goods, It is an expense for Office.

So,Office Stationery is under the Account Head Indirect Expenses.

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 the Ledger Accounts involved in the above transaction.

As a result,we found two Ledger Accounts

One is Printing & Stationery A/c and another is Cash A/c

Debit and Credit Ledger when Indirect Expense is paid by Cash
Step - 2

In second step,we have 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

Nominal Account(Printing & Stationery A/c) and Real Account(Cash A/c) in Traditional Approach.

Expense Account(Printing & Stationery A/c) and Asset Account(Cash A/c) in Modern Approach.

Type of Ledger Accounts involved when Indirect Expense is paid by Cash
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.

Printing & Stationery A/c(Expense) and Cash A/c(Goes out) for the business in Traditional Approach.

Printing & Stationery A/c(Expense/Expenditure Account) increases and Cash A/c(Asset Account) decreases in Modern Approach.

Flow of Ledger Accounts on Cash payment of Indirect Expenses
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, Printing & Stationery A/c shows a Debit effect for ₹530/- and 

Cash A/c shows a Credit effect for ₹530/-

When Indirect Expense is paid by Cash - Indirect Expense A/c(Dr.) and Cash A/c(Cr.)

Location: Bhubaneswar, Odisha, India

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