DOUBLE ENTERY BOOK KEEPING

WHAT IS DOUBLE ENTRY BOOK KEEPING

It is a fundamental concept that every financial transaction has equal and opposite effect which is to
satisfy the accounting equation which is stated below.[ CITATION ADA19 \l 1033 ]

ACCOUNTING EQUATION

ASSETS=LIABILITES + EQUITIES

DEFINATIONS OF DEBIT AND CREDIT

DEBIT

An accounting entry which increases an asset and decreases and liability and it is always positioned
on the left side in accounting entry

CREDIT

An accounting entry which decreases an asset and increases a liability and it is always positioned on
the right hand side in accounting entry

RULES OF DEBIT AND CREDIT

 All accounts that normally contain a debit balance will increase in amount when a debit (left
column) is added to them, and reduced when a credit (right column) is added to them. The
types of accounts to which this rule applies are expenses, assets, and dividends.
 All accounts that normally contain a credit balance will increase in amount when a credit
(right column) is added to them, and reduced when a debit (left column) is added to them.
The types of accounts to which this rule applies are liabilities, revenues, and equity.
 The total amount of debits must equal the total amount of credits in a transaction.
Otherwise, an accounting transaction is said to be unbalanced, and will not be accepted by
the accounting software.

USAGE OF DEBIT AND CREDIT IN BUSINESS TRANSACTIONS

 Sale for cash: Debit the cash account | Credit the revenue account
 Sale on credit: Debit the accounts receivable account | Credit the revenue account
 Receive cash in payment of an account receivable: Debit the cash account | Credit the
accounts receivable account
 Purchase supplies from supplier for cash: Debit the supplies expense account | Credit the
cash account
 Purchase supplies from supplier on credit: Debit the supplies expense account | Credit the
accounts payable account
 Purchase inventory from supplier for cash: Debit the inventory account | Credit the cash
account
 Purchase inventory from supplier on credit: Debit the inventory account | Credit the
accounts payable account
 Pay employees: Debit the wages expense and payroll tax accounts | Credit the cash account
 Take out a loan: Debit cash account | Credit loans payable account
 Repay a loan: Debit loans payable account | Credit cash account
 Task: 1.3: TRIAL BALANCE
The information was provided to and the trial balance will be based on that information
we will take three steps to extract the trial balance as the trial balance rule states that
total debit entries = credit entries

SCENARIO 1

Mr. David has started a new business and has hired you to maintain his
business transactions using double-entry bookkeeping system. Draw a trial
balance for the month ending 31 st January, based on the following
transactions:

Jan 10th Mr. David started business with £60,000

11th He bought furniture from Modern Furniture for £10,000
12th He purchased goods for cash £15,000
13th He purchased goods from B. Sen & Co. for £30,000
14th David opened a bank account by depositing £16,000
16th He holds goods for cash £15,000
17th He purchased stationary for £1000 from Nok Stationary Mart
18th Sold goods to Cris for £10,000
19th He bought machinery for £6,000 and payment made by cheque
20th Goods returned by Cris for £2,000
21st Payment to B. Sen & Co. by cheque 5,000
22nd Withdrew from bank for personal use £3,000
23rd Interest paid through cheque £2,000
24th Withdrew from bank for office expenses £10,000
26th Cheque received from Cris £5,000
27th Paid electricity bill for £100
29th Cash sales for £6,000
30th Commission received by cheque £5,000
 ANSWER

S:01
Descriptio Description Debit Credit Account Head
n
Nov-01 Cash 18,0 Current Asset
00
Bank 12,0 Current Asset
00
Capital 30,0 Owner's Equity
00
Mr. Philip Started business with cash
     
Nov-02 Vehicle 6,0 Non-Current
00 Asset
Cash 6,0 Current Asset
00
Purchased vehicle on cash
Nov-10 Advance to Vendor 6,0   Current Asset
00
Bank 6,0 Current Asset
00
Advance paid to vendor against
furniture

Furniture 12,0 Non-Current

00 Asset
XYX & Co. 12,0 Current Liability
00
Purchased furniture
Nov-14 Cash 20,0   Current Asset
00
Mr. X 20,0 Non-Current
00 Liability
Amount borrowed in
cash
Nov-15 J Mash 2,0   Current Asset
 00
Vehicle 2,0 Non-Current
00 Asset
Vehicle sold on credit
Nov-16 Drawing - Capital 5   Owner's Equity
00
Furniture - Table 5 Non-Current
00 Asset
Table took away for personal
use
Nov-20 XYZ Co 4,0   Current Liability
00
Bank 4,0 Current Asset
00
Payment made to XYZ
Co
Nov-23 Cash 5   Current Asset
00
J Mash 5 Current Asset
00
Cash received for J
Marsh
Nov-27 XYZ Co 1,0   Current Liability
00
Capital 1,0 Owner's Equity
00