Double entry example 1

In this example the following will be used: Books of prime entry (Books of original entry)

   

Sales Invoice Daybook (records customer Invoice Daybook) Bank Receipts Daybook (records customer & non customer receipts) Purchase Invoice Daybook (records supplier Invoice Daybook) Bank Payments Daybook (records supplier & non supplier payments)

The books of prime entry are where transactions are first recorded. They are not part of the Doubleentry system. Ledger Cards

     

Customer Ledger Cards Supplier Ledger Cards General Ledger (Nominal Ledger) Bank Account Ledger Trade Creditors Ledger Trade Debtors Ledger

[edit]Purchase invoice daybook Purchase Invoice Daybook

Date

Supplier Name

Reference Amount Electricity Widgets

10 July 2006 Electricity Company

PI1

1000

1000

12 July 2006

Widget Company

PI2

1600

1600

-------

-------

-------

Total

2600

1000

1600

====

====

====

Credit

Debit

Debit

Trade

Electricity Widgets

Creditors

G/L

G/L

control a/c

a/c

a/c

Each individual line is posted as follows:

 

The amount value is posted as a credit to the individual supplier's ledger a/c The analysis amount is posted as a debit to the relevant general ledger a/c

From example above:

Line 1 - Amount value 1000 is posted as a credit to the Supplier's ledger a/c ELE01-Electricity

Company

Line 2 - Amount value 1600 is posted as a credit to the Supplier's ledger a/c WID01-Widget

Company The totals of each column are posted as follows:

  

Amount total value 2600 posted as a credit to the Trade creditors control a/c Electricity total value 1000 posted as a debit to the Electricity General Ledger a/c Widget total value 1600 posted as a debit to the Widgets General Ledger a/c

Double-entry has been observed because Dr = 2600 and Cr = 2600.

[edit]Bank payments daybook
The payments book is not part of the double-entry system.

Bank Payments Daybook

. BP = Bank Payment Each individual line is posted as follows:   The amount value is posted as a debit to the individual supplier's ledger a/c.Amount value 1000 is posted as a debit to the Supplier's ledger a/c ELE01-Electricity Company.Date Supplier Name Reference Amount Suppliers Wages 17 July 2006 Electricity Company BP701 1000 1000 19 July 2006 Widget Company BP702 900 900 28 July 2006 Owner's Wages BP703 400 400 ------- ------- ------- Total 2300 1900 400 ==== ==== ==== Credit Debit Debit Bank Trade Wages Account Creditors control a/c control a/c Keys: PI = Purchase Invoice. The analysis amount is posted as a credit to the relevant general ledger a/c. From example above:  Line 1 .

[edit]Supplier ledger cards Supplier Ledger Cards A/c Code: ELE01 . Each transaction will be recorded in at least two ledger accounts.Amount value 900 is posted as a debit to the Supplier's ledger a/c WID01-Widget Company.Electricity Company Date Details Reference Amount Date Details Reference Amount 17 July 2006 Bank Payments Daybook BP701 1000 10 July 2006 Invoice PI1 1000 31 July 2006 Balance c/d 0 ------- ------- 1000 1000 ==== ==== 1 August Balance b/d 2006 0 . From these daybooks we create the ledger accounts. The daybooks are the key documents (books) to the double entry system. The totals of each column are posted as follows:    Amount total value 2300 posted as a credit to the Bank Account. Other total value 400 posted as a debit to the Wages control a/c. Trade Creditors total value 1900 posted as a debit to the Trade creditors control a/c. Line 2 . Double-entry has been observed because Dr = 2300 and Cr = 2300.

A/c Code: WID01 .Widget Company Date Details Reference Amount Date Details Reference Amount 19 July 2006 Bank Payments Daybook BP702 900 12 July 2006 Invoice PI2 1600 31 July 2006 Balance c/d 700 ------- ------- 1600 1600 ==== ==== 1 August Balance b/d 2006 [edit]Sales/customers [edit]Sales daybook Sales Invoice Daybook 700 Date Customer Name Reference Amount Parts Service 2 July 2006 JJ Manufacturing SI1 2500 2500 29 July 2006 JJ Manufacturing SI2 3200 3200 ------- ------- ------- .

The analysis amount is posted as a credit to the relevant general ledger a/c. Double-entry has been observed because Dr = 5700 and Cr = 5700. Sales-parts total value 2500 posted as a credit to the Sales parts a/c. Sales-service total value 3200 posted as a credit to the Sales service a/c.Amount value 3200 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing. The totals of each column are posted as follows:    Amount total value 5700 posted as a debit to the Trade debtors control a/c. [edit]Customer ledger cards Customer Ledger cards are not part of the Double-entry system. From example above:  Line 1 . .  Line 2 .Amount value 2500 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing. They are for memorandum purposes only.Total 5700 2500 3200 ==== ==== ==== Debit Credit Credit Trade Sales Sales debtors Parts Service control a/c alabiebi a/c a/c Each individual line is posted as follows:   The amount value is posted as a debit to the individual customer's ledger a/c. They allow you to know the total amount an individual customer owes you.

CUSTOMER LEDGER CARDS A/c Code: JJM01 .JJ Manufacturing Date Details Reference Amount Date Details Reference Amount 2 July 2006 Sales invoice daybook SI1 2500 20 July 2006 Bank receipts daybook BR1 2500 29 July 2006 Sales invoice daybook SI2 3200 31 July 2006 balance c/d 3200 ------- ------- 5700 5700 ==== ==== 1 August 2006 Balance b/d 3200 [edit]General (nominal) ledger GENERAL (NOMINAL) LEDGER Sales parts Date Details Reference Amount Date Details Reference Amount 31 July 2006 Balance c/d 2500 2 July 2006 Sales invoice daybook SDB 2500 ------- ------- .

PDB 1000 30 May 2010 Balance c/d 1000 ------- ------- 1000 1000 .2500 2500 ==== ==== 1 August 2006 Balance b/d 2500 Sales service Date Details Reference Amount Date Details Reference Amount 31 May 2006 Balance c/d 3200 29 July 2006 Sales invoice daybook SDB 3200 ------- ------- 3200 3200 ==== ==== 1 June 2010 Balance b/d 3200 Electricity Date Details Reference Amount Date Details Reference Amount 10 May 2010 Electricity Co.

==== ==== 1 June 2010 Balance b/d 1000 Water Date Details Reference Amount Date Details Reference Amount 12 May 2010 water Co. Pdb 1600 31 May 2010 Balance c/d 1600 ------- ------- 1600 1600 ==== ==== 1 August 2010 Balance b/d 1600 Other a/c Date Details Reference Amount Date Details Reference Amount 28 July 2006 Owner's Wages BPDB 400 31 July 2006 Balance c/d 400 ------- ------- 400 400 .

==== ==== 1 August 2006 Balance b/d 400 Bank Control A/c Date Details Reference Amount Date Details Reference Amount 31 July 2006 Bank receipts daybook BRDB 2500 31 July 2006 Bank payments daybook BPDB 2300 31 July 2006 Balance c/d 200 ------- ------- 2500 2500 ==== ==== 1 August 2006 Balance b/d 200 Trade Debtors Control A/c Date Details Reference Amount Date Details Reference Amount 1 July 2006 Balance b/d 0 31 July 2006 Bank receipts daybook BRDB 2500 31 July 2006 Sales Invoice Daybook SDB 5700 31 July 2006 Balance c/d 3200 .

The trade debtors control a/c is the total of outstanding debtors and the customer ledger cards shows the amount due for each individual customer. The total of each individual customer account added together should equal the total in the trade debtors control a/c. .------- ------- 5700 5700 ==== ==== 1 August 2006 Balance b/d 3200 Trade Creditors Control A/c Date Details Reference Amount Date Details Reference Amount 31 July 2006 Bank Payments Daybook BPDB 1900 1 July 2006 Balance b/d 0 31 July 2006 Balance c/d 700 31 July Purchase Daybook 2006 PDB 2600 ------- ------- 2600 2600 ==== ==== 1 August 2006 Balance b/d 700 The customers ledger cards shows the breakdown of how the trade debtors control a/c is made up.

The total of each individual supplier account added together should equal the total in the trade creditors control a/c. The trade creditors control a/c is the total of outstanding creditors and the suppliers ledger cards shows the amount due for each individual supplier. [edit]Bank account Bank A/c Date Details Reference Amount Date Details Reference Amount 1 July 2006 Balance b/d 0 17 July 2006 Bank Payments Daybook BP701 1000 20 July 2006 Bank Receipts Daybook BR1 2500 19 July 2006 Bank Payments Daybook BP702 900 28 July 2006 Bank Payments Daybook BP703 400 31 July 2006 Balance c/d 200 ------- ------- 2500 2300 ==== ==== 1 August 2006 Balance b/d 200 [edit]Unadjusted trial balance .The supplier ledger cards shows the breakdown of how the trade creditors control a/c is made up. If you have more than one bank account for your company you will have to maintain separate bank account ledger in order to complete bank reconciliation statements and be able to see how much is left in each account. Each Bank a/c shows all the money in and out through a bank.

------- 6400 6400 ===== ===== Both sides must have the same overall total Debits = Credits. .Trial balance as at 31 July 2006 A/c description Debit Credit Sales-parts 2500 Sales-service 3200 Widgets 1600 Electricity 1000 Other 400 Bank 200 Trade Debtors Control A/c 3200 Trade Creditors Control A/c 700 ------.

There are methods of creating a trial balance that significantly reduce the time it takes to record entries in the general ledger and trial balance. Important note: this example is designed to show double entry.The individual customer accounts are not to be listed in the trial balance..... as the Trade creditors control a/c is the summary of each individual supplier a/c. as the Trade debtors control a/c is the summary of each individual customer a/c. The individual supplier accounts are not to be listed in the trial balance.. [edit]Profit-and-loss statement and balance sheet Profit and loss statement for the month ending 31 July 2006 Dr x Sales x Sales-parts 2500 x Sales-service 3200 x ------- x 5700 x Widgets 1600 x ------- x Gross Profit 4100 .

x Less expenses x Electricity 1000 x Other 400 x ------- x 1400 x ------- x Net Profit 2700 x ==== Balance sheet as at 31 July 2006 Dr x Current Assets x Bank A/c 200 x Trade Debtors 3200 x ------- .

x 3400 x Current Liabilities x Trade Creditors 700 x ------- x 700 x ------- x Net Current Assets 2700 x ==== x Capital & Reserves x Revenue Reserves a/c 2700 x ------- x 2700 x ==== [edit]Double Entry Example 2 [edit]Transactions .

000 Sell goods for cash: $3.000 Pay workers from cash in bank to make goods: $1. Each of the daily journals has been summarized and the amounts are ready to be transferred to the general ledger.000 To close the books for the month.000 Pay sales force from cash in bank to sell goods: $1. each matching credit and debit have been numbered to make finding them in the ledger easier.500. The amounts to be transferred are:     Purchase raw materials on trade credit: $500.500.XYZ Company is closing its books for the end of the month. [edit]Ledgers General Ledger (in 000s) Transaction Debit Credit Balance Expenses Balance forward - 1 Raw materials $ 500 $ 500 2 Labor $ 1500 $ 2000 3 Sales costs $ 1000 $ 3000 5 Income summary $ 3000 - . These items are entered in the ledger below. we will adjust expenses and revenue to zero by appropriately crediting and debiting the income summary and then closing the income summary toretained earnings (part of equity).000.

Total $ 3000 $ 3000 Revenue Balance forward - 4 Revenue from sales $ 3500 $ 3500 6 Income summary $ 3500 - Total $ 3500 $ 3500 Cash Balance forward $11000 2 Labor $ 1500 $ 9500 3 Sales costs $ 1000 $ 8500 4 Revenue from sales $ 3500 $12000 Total $ 3500 $ 2500 Accounts Payable Balance forward $ 1000 1 Raw materials $ 500 $ 1500 Total - $ 500 .

000. Since equity has a normal balance of credit.000 more in equity than at the beginning of the month.Income summary Balance forward - 5 Expense $ 3000 $ 3000 6 Revenue $ 3500 $ 500 7 Retained earnings $ 500 - Total $ 3500 $ 3500 Retained earnings Balance forward $10000 7 Income summary $ 500 $10500 Total - $ 500 Total all accounts: $13500 $13500 The amount in equity (in the form of retained earnings) has changed with a net credit of $500. [edit]See   also Nostro and vostro accounts Single-entry accounting system . this means there is now $500.

eds (1953). 7. New York: Broadway Books. D. ^ IASB Framework for the Preparation and Presentation of Financial Statements. Enterprise and Secular Change: Readings in Economic History. Freeman. Jelle. (quoted in "Accounting and rationality") ^ Woodford. 8. Paragraph 47 [edit]External links Wikibooks has a book on the topic of Accounting      A Concise Explanation of the Accounting Equation A double entry GnuCash How-to Bean Counter's bookkeeping tutorial Bookkeeping Terms GnuCash data entry concepts Categories: Accounting systems | Italian inventions • • • • New features Log in / create account Article Discussion . Freeman. Mario (2002). 6.Accounting: A Practical Approach (2 ed. Riemersma. Wilson. pp. R. ISBN 978-0-40932357-3. John (2008). 5. 24. p. A. "The Coming of Age of Double Entry: The Giovanni Farolfi Ledger of 1299-1300". Suellen. Irwin. pp.). Accounting Historians Journal. Lee (1977). The Golden Ratio. William.[edit]Notes and references ^ Double Entry Bookkeeping ^ Subhi Y. 9. ^ Lane. "Capitalism in Medieval Islam". Valerie. 3. The Journal of Economic 1. Labib (1969). 130– 131. ISBN 0-7679-0816-3. 38. 4. 4(2): 79-95 ^ Luca Pacioli: The Father of Accounting ^ La Riegola De Libro ^ Livio. 2. History29 (1): 79–96 [92–3] ^ G. Pearson Education. Frederic C.

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