Double-entry Bookkeeping

Double-entry Bookkeeping: It is a fundamental accounting concept

It says every transaction has two equal and opposite effect on both debits and credits

Debit/ Credit: They are fundamental accounting terms

They accurately record changing values ( increase/decrease) in accounts(A,E,L,IC)

A,E

L,I,C

Debit
ASSET, EXPENSE = Debit
Credit

When asset and expense increase we debit them because a debit increases a debit (same sign increases)
When asset and expense decrease we credit them because a credit decreases a debit ( opposite sign decreases)

Credit

LIABILITY, INCOME, CAPITAL= Credit

Debit

When Liability, income and capital increase we credit them because credit increases credit (same sign increases)
When Liability, income and capital decrease we debit them because debit decreases credit (opposite sign decreases)

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 Venice, Italy

1500 AD

Lucia Paciole Father of double-entry bookkeeping

Developed double-entry bookkeeping system
Publish book in Latin

Debere (Dr): To Entrust something to someone

Debit (Dr)

Credere (Cr): To owe to someone

Credit (Cr)

What is not meaning of credit and debit in accounting

Achievement
Debt
Credit sales/purchases

Debit Credit

Good
Bad
Plus Minus

Separate Entity Concept: It says owner is distinct(separate) from business and we look at things from business
perspective
Business is business cup of tea is cup of tea.

To explain this further look at the example below

Khalid starts business by investing $100000 into it.
There are two perspectives here
1) Money coming to the business ( we care about this perspective)
2) Personal money decrease of khalid

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Goods = Items bought for resale = Purchases= expense
Trade Payables= Business from which goods are bought on credit= Liability
Trade Receivables= Businesses to which goods are sold on credit= Asset

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Books of secondary-entry ( 3 books )

After transactions are recorded in books of prime-entry they are posting to books of
secondary-entry.

General/Nominal/Main Ledger (chart of accounts)

It is one of the books of secondary-entry
It contains accounts of all classes (assets, Liability, Income, Expense, Capital.)
It contains total accounts called control accounts (TR,TP)
Transactions are posted here using double-entry ( so is part of double-entry)
The trial balance and financial statement are produced from this

Subsidiary/Personal Ledger

Sales/TR Ledger(customers) Purchase/TP Ledger (vendors)

It is one of the books of secondary-entry It is one of the books of secondary-entry

It contains personal TR accounts It contains personal TP accounts
Transactions are recorded here using single-entry Transactions are recorded here using single-entry

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 Document> Books of prime-entry> Books of secondary Entry > Reports

Sales Daybook Purchase Daybook

No Date Invoice Customer $ No Date Invoice Vendor $

1 1001 Khalid 200 1 210 Saleem 80
2 1002 Ahmad 300 2 4000 Shahid 120
3 1003 Jawad 150 3 6003 Khan 200
650 400

Dr TR 650 Dr Purchases 400

Cr Sales 650 Cr TP 400

General Ledger

TR Sales Purchase TP

650 400
650 400

Sales/TR Ledger Purchase/TP Ledger

Khalid Ahmad Jawad Saleem Khan

Shahid

200 300 150 80 120 200

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Tuesday, November 13, 2018 4:34 PM

Dr Name Cr

Date Des $ $ Des Date

For a transaction if there is an account we will put it in that account if there is no

account will create an account for it

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General Ledger

General Ledger

Cash Capital Computer

100000 500 100000 100000 500 500

1000 1000
6000 2000
700 1500
500
2000
500
100
1000 Machine
98600 Purchases

1000 1000 2000

1000 3000

TP TR Sales

500 1000 2000 700 3000 2000

500 1300 1000

Salary Exp Loan Rent Exp

1500 1500 2000 6000 500 500

4000

Interest Exp Car

1000 1000
100 100

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Balance
Thursday, December 13, 2018 3:18 PM

The difference between total credits and debits in an account

Debit Balance= When debit side is more than credit side

Opening= Debit side= Left side
Closing= Credit side= right side

Credit Balance= When credit side is more than debit side

Opening= Credit side= Right side
Closing= Debit side= Left side

Opening Balance= Balance at the start of a period ( say January)

Balance brought forward (BF) Brought Down(BD)

Closing Balance= Balance at the end of a period (Say December)

Carried Forward (CF) Carried Down (CD)

What is closing balance becomes opening next period

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