DOUBLE-ENTRY BOOKKEEPING

The bookkeeping system can be stated as a series of identities:

• Balance Sheet identity:

Assets = Liabilities + Owners’ Equity

sum of account balances on LEFT = sum of account balances on RIGHT

sum of the DEBITS (left) = sum of the CREDITS (right)

• To preserve this identity, for EVERY transaction:

DEBITS = CREDITS
• ASSETS have DEBIT balances

• LIABILITIES and OWNERS’ EQUITY have CREDIT balances

• This means that:

INCREASES in ASSETS are DEBITS

DECREASES in ASSETS are CREDITS

INCREASES in LIABILITIES are CREDITS

DECREASES in LIABILITIES are DEBITS

INCREASES in OWNERS’ EQUITY are CREDITS

DECREASES in OWNERS’ EQUITY are DEBITS
 DOUBLE-ENTRY BOOKKEEPING

JOURNAL ENTRIES

Dr. Account A XXX

Cr. Account B XXX

T-ACCOUNTS

Account A Account B

XXX XXX
 DOUBLE-ENTRY BOOKKEEPING

Assets = Liabilities + Stockholders’ Equity

+ – – + – +
Debit Credit Debit Credit Debit Credit
Normal Normal Normal
Balance Balance Balance

Contributed Capital Retained Earnings

– + – +
Debit Credit Debit Credit
Normal Normal
Balance Balance

Expense Revenue
+ – – +
Debit Credit Debit Credit
Normal Normal
Balance Balance
 COMMON TRANSACTIONS
Cash Contributed Capital

Issue of Common Stock XXX XXX

Cash Bonds Payable

Issue of Debt XXX XXX

Inventory Accounts Payable

Purchase of Inventory XXX XXX

Property, Plant &

Equipment Accounts Payable

Purchase of Property, Plant, XXX XXX

& Equipment

Accounts Receivable Sales Revenue

Sales of Goods & Services XXX XXX

 Cost of Goods Sold Inventory

Sale of Goods XXX XXX

Operating Expenses Accounts Payable

Operating Expenses XXX XXX

Cash Accounts Receivable

Collection of Receivables XXX XXX

Accounts Payable Cash

Payment of Trade Suppliers XXX XXX

Property, Plant, &

Depreciation Expense Equipment (Accum. Depr.)

Depreciation Expense XXX XXX

 Interest Expense Interest Payable

Accrual of Interest XXX XXX

Interest Payable Cash

Payment of Interest XXX XXX

Retained Earnings Dividend Payable

Declaration of Dividend XXX XXX

Dividend Payable Cash

Payment of Dividend XXX XXX