Indian Accounting Fundamentals: Equation, Double-Entry & GST Basics

Every Indian business — from a sole proprietorship to a listed company — records transactions using one foundational identity:

Assets = Liabilities + Equity

• Assets are resources the business controls (cash, inventory, receivables, plant).
• Liabilities are obligations to outsiders (loans, payables, statutory dues).
• Equity is the owners' residual interest (capital, reserves, retained earnings).

Every transaction keeps this equation in balance. When a proprietor invests ₹10,00,000 cash:

Account	Debit (₹)	Credit (₹)
Cash (Asset)	10,00,000
Capital (Equity)		10,00,000

Golden rules of debit and credit (traditional Indian teaching):

Account type	Debit when…	Credit when…
Personal	Receiver	Giver
Real (Asset)	Increases	Decreases
Nominal (P&L)	Expenses/losses increase	Incomes/gains increase

Modern practice maps these to: debit increases assets and expenses; credit increases liabilities, equity, and income.

Double-entry bookkeeping means every transaction affects at least two accounts with equal debits and credits. Nothing is recorded in isolation — this is what makes books self-checking.

Flow of records:

1. Source document — invoice, payment voucher, bank statement.
2. Journal (Book of Original Entry) — chronological record with narration.
3. Ledger — one account per page; journal entries are posted here.
4. Trial Balance — list of all ledger balances to verify total debits = total credits.

Example journal entry — purchased goods on credit ₹50,000:

Date: 01-Apr-2026
Dr. Purchases A/c          ₹50,000
    Cr. Creditor A/c               ₹50,000
(Being goods purchased on credit from ABC Traders)

After posting, the Purchases account (nominal) shows a debit balance; Creditor account (personal/liability) shows a credit balance.

Trial balance excerpt:

Account	Debit (₹)	Credit (₹)
Cash	2,00,000
Purchases	50,000
Creditors		80,000
Capital		1,70,000
Total	2,50,000	2,50,000

If totals mismatch, there is a posting or arithmetic error to trace. A balanced trial balance does not guarantee correctness — wrong account classification still balances.

India has a dual reporting framework:

• Indian GAAP (AS series) — Accounting Standards issued by ICAI; still used by many unlisted companies and smaller entities.
• Ind AS (Indian Accounting Standards) — Converged with IFRS; mandatory for listed companies, large unlisted companies, and others meeting turnover/net-worth thresholds (as notified by MCA from time to time).

High-level differences:

Topic	Indian GAAP (AS)	Ind AS
Revenue	AS 9 (earned/realizable)	Ind AS 115 (performance obligations)
Leases	AS 19 (finance/operating split)	Ind AS 116 (right-of-use model)
Fair value	Limited use	More pervasive (financial instruments, business combinations)

Essential documents you will encounter daily:

• Tax Invoice — GST-compliant bill with GSTIN, HSN/SAC, tax break-up.
• Payment/Receipt Voucher — evidence of cash/bank movement.
• Debit/Credit Note — adjusts earlier invoices (returns, rate corrections).
• Purchase Order & Goods Receipt Note (GRN) — supports cut-off and inventory control.

Always tie accounting entries to supporting documents — this is the audit trail foundation.

Goods and Services Tax (GST) is an indirect tax on supply of goods or services in India. It replaced many central and state levies (though some items remain outside GST). Rates and rules change — learn the structure, not memorised percentages.

Three components:

Tax	When it applies
CGST	Central share on intra-state supplies
SGST	State share on intra-state supplies (or UTGST)
IGST	Inter-state supplies and imports

Intra-state example — Mumbai seller to Mumbai buyer, taxable value ₹1,00,000, GST rate 18%:

Component	Rate	Amount (₹)
CGST	9%	9,000
SGST	9%	9,000
Total GST		18,000

Inter-state example — same value, seller in Maharashtra, buyer in Karnataka: IGST 18% = ₹18,000 (no CGST/SGST split).

Input Tax Credit (ITC) — conceptually, GST paid on purchases can offset GST collected on sales, reducing net liability. Conditions apply (valid invoice, goods/services used in business, returns filed, etc.).

Accounting tip: maintain separate ledgers for CGST, SGST, IGST payable and receivable (ITC) for clean reconciliation with GSTR returns.