TOPIC 2 DOUBLE ENTRY ACCOUNTING

2.1 Double entry accounting and the duality concept

• The duality concept means that every business transaction has at least two effects on the
financial position of a business.
• As each transaction has a double effect on the business, the duality concept is also called
the double entry concept.
• For example, when one buys stock for Shs 200,000 cash, his/her stock increases by Shs
200,000, but his cash is reduced by the same amount.
• Double entry accounting means that every business transaction is recorded using a
minimum of two accounting entries in the books of account of the entity.
• The two entries are of equal amount. For example, when one pays rent of Shs 300,000 cash
to the landlord, the payment reduces cash by Shs 300,000 and increases rent expense by
Shs 300,000.
• Single entry accounting is where one entry is recorded for each transaction, for example,
the above transaction is recorded as a payment of Shs 300,000 in the cash account.
• Although single entry accounting is easy to use, it does not provide detailed financial
information about business transactions.

2.2 Source documents

Definition and importance of source documents

Source documents are used to capture data as transactions occur. Source documents are
either on paper or in electronic form.

Source documents are important as they:

• Are evidence that transactions occurred.
• Provide important information that is used in classifying and recording transactions.
• Are used by accountants and auditors to look for errors and fraud.

Types of transactions on source documents

Several documents are used for various transactions. Common transactions in various trading
firms include the following:
• The purchase of goods and/or services for cash or on credit.
• The sale of goods and or services for cash or on credit.
• The receipt of cash from customers for cash sales, from debtors etc.
• The payment of suppliers for goods and/services, salaries and wages to employees etc.
• Getting loans from banks and other lenders and repayment of loans and interest.
• Withdrawing goods and/or money from the business by the owner(s).
• Investment in a business.

FINANCIAL ACCOUNTING
Common source documents
Type Purpose
Quotation • A document sent by a seller to a
buyer, showing the seller’s price for
goods to be produced or services to
be offered.
• Commonly used for goods/services
without standard prices.
• It is also called a Pro-forma invoice.
Purchase • A document sent by a buyer to a
order seller, showing details of goods or
services to be purchased and
requesting their supply.
• It is based on the quotation and is
used to prepare a delivery note
Sales order • A document generated by the seller,
showing details of goods or services
on the buyer’s order.
• Sent to the store / warehouse for
processing the order
• Are used to track buyers’ orders
Delivery • A document prepared by the seller
note/Goods listing the type and quantity of
dispatched goods delivered to the buyer.
note • It is based on the purchase order.
• When goods are received, the buyer
compares the goods received to the
delivery note before signing it,
acknowledging receipt of the goods.
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Contents
• Particulars of the seller and
the buyer.
• Quantity / description of
goods/services.
• Material, labour, and other
expenses for the
goods/services.
• Price to be charged to the
buyer.
• Usually two copies, the
buyer’s & the seller’s
• Particulars of the seller and
buyer
• Quantity, description and
price of goods/services, total
amount
• Terms of payment and
delivery
• Three copies commonly
used – for seller, store and
procurement.
• Particulars of the seller and
buyer
• Quantity / description and
price of goods/services, total
amount
• Two copies, the buyer’s &
the sellers
• Particulars of the seller and
buyer
• Quantity and description of
goods
• Usually two copies, the
buyer’s & the seller’s
Goods • A document of the buyer listing the
received goods received from the seller.
note • It is usually prepared in the store or
goods receiving section as proof of
receipt of goods.
• It is matched with the delivery note
and purchase order.
Invoice • A document issued by the seller to
the buyer, showing the cost and
quantity of goods or services sold
on credit and requesting payment.
• A sales invoice is sent to the seller to
the buyer and a purchase invoice is
sent by the seller to the buyer.
• It is cross checked against the
goods dispatch note, buyer order
and sales order.
• Four copies may be issued by large
company:
- Original – for the buyer as a request
for payment
- Duplicate – for accounts to match
with payment.
- Triplicate – to warehouse to
generate dispatch of goods
- Quadruplicate – stapled to the sales
order and kept in sales as evidence
of sales.
Statement • A document sent out by a seller to a
of account buyer listing transactions on the
buyer’s account during the period.
• It is used by the buyer to reconcile
the amount owed to the seller in
their books and that shown on the
statement.
Credit note A document issued by a seller to a
buyer for goods returned by the buyer
or to correct an overcharge on the
invoice.
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• Particulars of the seller and
buyer
• Quantity and description of
goods
• Particulars of the seller and
buyer
• Quantity, description and
price of goods or /services
• Trade discount
• Total amount and any VAT
• Terms of sale and payment,
including cash discounts.
• Particulars of the seller and
buyer
• Dates and amounts of sales
invoices and credit notes
issued.
• Payments received and
refunds made to the buyer.
• Amount owed by the credit
buyer.
• Particulars of the seller and
buyer
• Details of goods returned
e.g. quantity, price, value,
VAT
 Debit note • A document sent by a buyer to a
seller in respect of goods returned
or over payment made.
• It is also sent to correct an under
charge on the invoice (as a
supplementary invoice).
• It is a formal request for the seller to
issue a credit note.
• A debit note might be issued to
adjust an invoice already issued.
Remittance • A document sent to the seller with a
advice payment, showing the invoices paid
and credit notes offset.
• It helps the seller to identify invoices
paid and those outstanding.
• It confirms the amount paid so that
any discrepancies can be
investigated.
Receipt • A document issued by the seller to
the buyer, acknowledging money
received.
• It is also called a cash sale.
Bank • A document issued by the bank to a
statement customer showing transactions on
the customer’s bank account during
the period.
• It is used to reconcile the balance in
the cash book and the balance on
the bank statement, to check that
there are no errors or fraud.
• Particulars of the seller and
buyer
• Details of goods returned/
• Amount paid
• Method of payment
• Invoice number, account
number, date
• Particulars of the seller and
buyer
• Details of payment received
• Particulars of the bank,
buyer and account.
• Balances at the beginning of
the period.
• Dates and amounts of
withdraws & deposits.
• Balances at the end of the
period.

Read about other documents like the payment voucher, petty cash voucher, cheque, cheque
counterfoil and pay-in slip (Banking slip).

Examine sample documents in various entities, in Financial Accounting by Nkundabanyanga,

(page 55 – 62) or on the internet.

2.3 The accounting equation

Meaning
The accounting equation shows that the assets of an entity are equal to its equity and liabilities
(Assets = Equity + Liabilities) because all the assets of a business are financed either by:
FINANCIAL ACCOUNTING
• Equity (bought using owners’ equity or are contributed by owner(s) as a form of equity),
or
• Liabilities (bought on credit or using loans).

For example, if Jerome uses his savings of Shs 50,000 and gets loan of Shs 150,000 to buy a
computer at Shs 200,000 to start an internet café. The business owns an asset (computer)
worth Shs 200,000 owes equity of Shs 50,000 to Jerome and has a liability (loan) of Shs
150,000. Using the accounting equation: Assets (200,000) = Equity (50,000) + Liabilities
(150,000).

If the accounting equation is always balanced as a change on the left side, an equal must
accompany (Assets):
• But opposite change on the left side, or by,
• Change on the right side (either in Equity or Liabilities).

The table below shows the four effects of transactions on the accounting equation.

Effects of transactions Examples of transactions

Asset side only

One asset Another • When you buy furniture for Shs 300,000 cash, an asset
increases asset (furniture) increases by Shs 300,000 and another asset (cash)
decreases reduces by Shs 300,000.
by equal • When a debtor pays Shs 100,000 cash, an asset (debtors)
amount decreases by Shs 100,000 and an asset (cash) increases by Shs
100,000.
Assets & Equity
Assets Equity When the owner invests Shs 2 million cash to start a business,
increase increases assets (cash) increase by Shs 2 million and equity also increases
by equal by Shs 2 million.
amount
Assets Equity When the owner withdraws Shs 10,000 for his personal airtime,
decrease decreases assets (cash) reduce by Shs 10,000 and equity reduces by Shs
by equal 10,000.
amount
Assets & Liabilities
Assets Liabilities When a business receives a loan of Shs 1 million from the bank,
increase increase assets (Cash at bank) increase by Shs 1 million and liabilities
(bank loan) increase by Shs 1 million.
Assets Liabilities When a business pays credit suppliers Shs 500,000 cash, assets
decrease decrease (cash) reduce by Shs 500,000 and liabilities (payables) reduce by
Shs 500,000.

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 Equity & liabilities
Equity Liabilities When a business rents a shop for Shs 200,000 that remains
decreases increase unpaid at the end of the accounting period, equity reduces by
Shs 200,000 and liabilities (rent payable) increase by Shs 200,000.

Equity Liabilities When advertising income of Shs 100,000 received in advance in

increases decrease the previous accounting period is recognized in the current
accounting period, equity increases by Shs 100,000 and liabilities
(advertising income received in advance) reduce by Shs 100,000.

The balance sheet (or statement of financial position) always balances as it includes elements
in the accounting equation.

Example
The following were the transactions of Janice Traders during August 2019.
1st Janice invested Shs 500,000 cash in the business.
2nd Bought a business a bicycle for Shs 100,000 cash.
4th Bought goods for sale for Shs 50,000 cash.
5th Bought more goods for sale for Shs 60,000 on credit.
10th Sold goods bought at Shs 55,000 for Shs 80,000 cash.
12th Janice invested Shs 400,000 cash in the business.
15th Paid business rent of Shs 20,000 cash.
20th Sold goods bought at Shs 55,000 for Shs 90,000 on credit.
23rd Borrowed Shs 300,000 from his uncle.
24th Bought a motor cycle at Shs 250,000, paying Shs 150,000 cash.
25th Paid Shs 40,000 cash of the amount owed to the supplier.
28th Received Shs 50,000 cash from the debtor.
29th Removed Shs 10,000 cash from the business for personal use.
31st Paid Shs 30,000 cash as salary to the shop attendant.

Show the effects of each of the above transactions on the accounting equation for Janice
Traders.

Using the accounting equation to assess the financial performance of a business

• Assets = Equity + Liabilities.

Therefore, Assets – Liabilities = Equity.
As Assets bought using equity only are called net assets, therefore, equity = net assets.
Net assets are also called the net worth of the business as these assets are financed by
equity that is not to be repaid.

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• Over a period of time, the equity of a business changes, and therefore, an increase in net
assets = an increase in equity. A change in the equity of a sole trader over time arises from:
- More equity introduced (this increases equity)
- Profit for the period (this increases equity)
- Drawings during the period (this reduces equity)

A change in equity = New equity invested + Profit (or – Loss) – Drawings.

• A change in net assets = Closing net assets – Opening net assets.

Closing net assets – Opening net assets = New equity invested + Profit (or – Loss) –
Drawings.
Therefore, Profit (or Loss) = Closing net assets + Drawings – New equity invested –
Opening net assets.

Example:

On January, the net assets of a business were Shs 250,000. On December, they had increased
to Shs 340,000. During the year, the owner had invested more equity of Shs 100,000 and
withdrew Shs 30,000 for personal use. You are required to calculate the profit or loss for the
year.

Profit (or Loss) = Closing net assets + Drawings – Equity introduced – Opening net assets.
Profit (or Loss) = 340,000 + 30,000 – 100,000 – 250,000 = 20,000
As the figure is positive, the business made a profit of Shs 20,000.

Practice question
Amamu is a sole trader who had assets of Shs 560,000 and liabilities of Shs 410,000 on 1
January 2011. During the year ended 31 December 2011, he invested Shs 200,000 new equity
into the business, paid himself salaries of Shs 10,000 per month and took goods from the
business for personal use worth Shs 50,000. At 31 December 2011, Amamu had assets of Shs
610,000 and liabilities of Shs 360,000. Calculate the profit or loss for Amamu for the year
ended 31 December 2011.

2.4 Classification of accounts and the rules of double entry

Ledger accounts

A ledger account is a financial record for similar individual assets, liabilities, equity, expenses
or revenue.

Transactions are not added or subtracted in the balance sheet, as was the case in the example
of the accounting equation as it would make accounting cumbersome.
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Transactions are analysed and similar ones initially recorded directly in various accounts
maintained for each element of the financial statements. Ledger accounts are maintained in a
book called a ledger. The purpose of ledger accounts is to show the total amount for similar
items at anytime, before the transactions are summarized in the financial statements.

A ledger account has a title, debit entries and credit entries. Debit and credit entries increase
or decrease account balances (as explained in below). A ledger account may have opening
and closing balances at the beginning and at the end of the accounting period.

The format of a ledger account

In double entry accounting, every transaction is recorded in at least two accounts, one account
has a debit entry and another has a credit entry.

When a debit entry is recorded in an account, one says the account has been debited. Debit
entries are called debits to the account. Debit is abbreviated as Dr. When a credit entry is
recorded in the account, one says the account has been credited. Credit entries are called
credits. Credit is abbreviated as Cr.

In a manual accounting system, the standard ledger account has two sides like letter T (see
example below) and accounts are sometimes called T- Accounts. The left or debit side is where
debit entries are recorded and the right or credit side, where credit entries are recorded. Debit
means to record an amount on the left side of an account. Amounts recorded on the debit
side of any account are called debits. Credit means to record an amount on the right side of
an account. Amounts recorded on the right side of any account are called credits.

Debit Account title Credit

Date Details* Folio** Amount Date Details Folio Amount

Shs Shs

Date – this is the date when the transaction occurred.

*Or Particulars – this is the name of the account where the other entry is recorded.
** Or Reference – this is the page number for the source of the information.

A ledger account in a computerized system may simply be a list of an opening balance, debit
entries, credit entries and a closing balance. Consider the example of a statement for a bank
account from an Automated Teller Machine (ATM).

Classification of ledger accounts and the debit and credit rules

There are two types of classification of accounts.

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Modern classification

Today, accounts are classified according to the five elements of financial statements as follows:
• Asset accounts include machine account, furniture account, office equipment account,
motor vehicle account, inventory account, receivables accounts, bank account, and cash
account.
• Equity accounts include the capital account.
• Liability accounts include payables accounts and bank loan account.
• Income accounts include the sales account, interest income account and rent income.
• Expense accounts include salary account, electricity account and rent expense account.

In addition to the five types of accounts, there is a drawings account that reduces equity.
Below are the accounts types and their debit and credit rules.

Assets Equity
Debit Credit Debit Credit
(Increase) (Decrease) (Decrease) (Increase)

Normal balance Normal balance

Liabilities Expenses

Debit Credit Debit Credit

(Decrease (Increase) (Increase) (Decrease)

Normal balance Normal balance

Income Drawings

Debit Credit Debit Credit

(Decrease) (Increase) (Increase) (Decrease)

Normal balance Normal balance

The following explanations assist one in understanding the debit and credit rules above:
• Whether an account is debited or credited depends on the type of account and the nature
of transaction.
• Transactions increasing the equity and liability account balances are credited to these
accounts (as opposed to debits in the asset accounts) because both items are on the same
side of the accounting equation.
• As income increases equity, transactions increasing income are credited to income
accounts, similar to increases in equity.
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• As expenses reduce equity, transactions increasing expenses are debited to expense
accounts, similar to decreases in equity.
• The normal balances in all accounts are on the side where more transactions are recorded
during the accounting period. For example, most entries in assets accounts are debit
entries and therefore they have debit-closing balances.
• The debit and credit rules above should not be confused with how they are used with bank
accounts. When a customer deposits money on his bank account, the bank credits your
account (that increases the account balance) and when a customer withdraws money from
the account, the bank debits your account (that decreases the account balance). These
entries follow the same rules, except that the accounting entries are in the books of the
bank and not those of the customer. When you deposit money, the bank’s liability to the
customer increases and that is why the bank credits your account in its books.

Analysis of transactions

Analysis of transaction is done to determine:

• At least two accounts affected by the transaction.
• The type of accounts they are i.e. whether assets, liabilities, equity, income and expenses.
• Whether the transaction increases or decreases the account balance
• Which account should be debited or credited.

For example, when a business buys a computer for Shs 800,000 cash, there is:
• An increase in computers (an asset) by Shs 800,000.
• A decrease in cash (an asset) by Shs 800,000.

The computer account is debited and the cash account is credited as follows:

Computer account Cash account

Shs Shs

Cash 800,000 Computer 800,000

The debit entry in the Computer account shows the title of the account where the credit entry
is recorded. The credit entry in the Cash account also shows the title of the account where the
debit entry is recorded.

Double entry for cash transactions

Cash transactions are where payment is made or received immediately. Source documents
include receipts and cheques. The following are examples of double entry for common cash
transactions.

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• Introduction of cash as equity by the owner: Debit Cash Account
Credit Equity Account (or Share capital)

• A cash loan to the business: Debit Cash Account

Credit Loan Account

• Receipt of a bank loan: Debit Bank Account

Credit Loan Account

• Purchase of a computer for cash: Debit Computer Account

Credit Cash Account

• Cash sales: Debit Cash account

Credit Sales account

As sale increases income and assets of the business, assets are debited and income is
credited.
A sale also reduces inventory, however the accounting for inventory is done separately, as
explained later. Generally, a sale is recognized when goods are delivered to the buyer i.e.
when risks and rewards in the goods are transferred to the buyer.

• Purchase of inventory for cash: Debit Purchases account

Credit Cash account

The purchase of inventory for cash increases the purchases account and decreases cash of
the entity. The purchase of inventory also increase inventory, although the accounting for
inventory is kept separate from accounting for purchases as will be discussed under
inventory accounting later.

• Payment of cash for rent: Debit Rent account

Credit Cash account
• Receipt of cash for rent: Debit Cash account
Credit Rent income

• Payment of rent by cheque: Debit Rent account

Credit Bank account

• Withdrawal of cash for personal use by the owner: Debit Drawings account
Credit Cash account

• Receipt of interest income from the bank: Debit Bank account

Credit Interest income account

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• Deposit of cash in the bank: Debit Bank Account
Credit Cash Account

• Withdrawal of cash by cheque for the business: Debit Cash Account

Credit Bank Account

Double entry for credit purchases, credit sales, payment to creditors and receipt of
money from debtors

These are transactions where goods and services are sold but payment or receipt of money is
made later.

• Purchase of inventory on credit: Debit Purchases account

Credit Trade payables account

• Payment of cash to a credit supplier: Debit Trade payables account

Credit Cash account

• Payment of a credit supplier by cheque: Debit Trade payable account

Credit Bank account

• Sale of inventory on credit: Debit Trade receivable account

Credit Sales account

• Receipt of cash from a credit customer:

Debit Cash account
Credit Trade receivable account
• Receipt of a cheque from a credit customer: Debit Bank account
Credit Trade receivable account
Example

Record the following transactions in the ledger accounts of Otim.

Bought goods for Shs 400,000 on credit.
Sold goods for shs 500,000 on credit.
Bought a computer for business use for Shs 900,000 on credit.
Paid Shs 300,000 cash to the credit supplier.
Received Shs 250,000 cash from the credit customer.

Double entry for sales returns and purchases returns

• Return of goods by a credit customer: Debit Sales returns account

(or Returns inwards account)
Credit Trade receivables account

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• Return of inventory to a credit supplier: Debit Trade payable account
Credit Purchases returns account
(or Returns inwards account)
Example

Record the following transactions in the ledger accounts of Otim.

Bought goods for Shs 700,000 on credit.
The customer returned goods worth Shs 50,000.
Sold goods for shs 500,000 on credit.
Otim returned goods worth Shs 60,000 to the supplier.

Double entry for cash discounts

Cash discounts are given to customers as an incentive for prompt payment of the amount
outstanding. This is called a discount allowed. Discount allowed is an expense in the books of
the seller. The cash discount given to a credit customer is recorded as follows:
Debit Discount allowed account
Credit Trade receivable account

A business may receive a cash discount from a supplier for early payment. This is called a
discount received. Discount received is income to the buyer. The cash discount received from
credit suppliers is recorded as follows:
Debit Trade receivable account
Credit Discount received account

Example

Muna bought goods for Shs 500,000 on credit and the amount was payable within a month
at a discount of 2%. Musa paid within the discount period. Record the above transactions in
the books of Muna.

Agandi sold cows for Shs 4 million on credit and the amount was payable within a week at a
cash discount of 3%. Agandi received the money after 5 days. Record the above transactions
in the books of Agandi.

Trade discounts are reductions in selling prices for bulk purchases or for customer loyally.
Their purpose is to increase sales. Trade discounts are generally ignored in accounting records.
Therefore, sales, along with any receivables in the case of a credit sale, are recorded net of
any trade discounts offered.

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For example, Orange Ltd as part of its sales promotion campaign has offered to sell their
phones at a 10% discount on their selling price of Shs 100,000. Sales will be recorded net of
trade discount, at Shs 90,000 per phone.

Drawings in kind

Removal of inventory for personal use by the owner: Debit Drawings account
Credit Purchase account (or Cost
of sales)

The goods are valued at cost to the entity (purchase prices) and not at selling prices. Purchases
or the Cost of goods sold are reduced as the value of goods withdrawn by the proprietor
represents the value of inventory that has not been used for trading purposes in order to get
the true cost of goods sold.

An example on double entry accounting

Mr. Odongo started Makerere Canteen on May 1st 2011 and the following are the business
transactions during the month.

1st Odongo invested his personal cash savings of Shs 800,000 in the business
1st Received a two year loan of Shs 200,000 cash from Muggaga.
3rd Bought shop fittings for Shs 250,000 cash.
5th Bought a bicycle for Shs 300,000 on credit from Kakama for use in the business.
6th Bought inventory for Shs 160,000 cash.
8th Sold half of the goods bought on 6th for Shs 120,000 cash.
10th Bought inventory for Shs 120,000 on credit from Ogola.
12th Sold goods that were bought at Shs 60,000 for Shs 90,000 to Akello on credit.
13th Paid Shs 12,000 cash for the canteen wages.
15th Paid all the amount due to Kakama less a cash discount of 5%.
18th Returned defective goods for Shs 20,000 to Ogola.
19th Akello returned goods bought at Shs 10,000 (purchased at Shs 7,000).
21st Received all the amount owed by Akello in cash less a discount of 4%.
25th Took goods with a selling prices of Shs 30,000 (purchased at Shs 25,000 for
personal use.
26th Sold goods to Okello on credit for Shs 50,000 (purchased at Shs 40,000).
28th Paid Shs 3,000 cash for the canteen electricity.
29th Bought goods for sale from Agaba for Shs 60,000 on credit.
30th Withdrew Shs 5,000 cash for personal use.
31st Paid Shs 10,000 cash for the canteen rent.

You are required to record the above transactions in the ledger accounts of Makerere and
balance the accounts on 31.5.2011.

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Makerere Canteen ledger accounts in Shs

Cash a/c
1.5.2011 Equity 800,000 3.5.2011 Fittings 250,000
1.5.2011 Muggaga loan 200,000 6.5.2011 Purchases 160,000
8.5.2011 Sales 120,000 13.5.2011 Wages 12,000
21.5.2011 Akello 76,800 15.5.2011 Kakama 285,000
28.5.2011 Electricity 3,000
30.5.2011 Drawings 5,000
31.5.2011 Rent 10,000
31.5.2011 Balance c/f 471,800
1,196,800 1,196,800

1.6.2011 Balance b/f 471,800

Equity a/c
31.5.2011 Balance c/f 800,000 1.5.2011 Cash 800,000
800,000 800,000
1.6.2011 Balance b/f 800,000

Muggaga loan a/c

31.5.2011 Balance c/f 200,000 1.5.2011 Cash 200,000
200,000 200,000
1.6.2011 Balance b/f 200,000

Fittings a/c
3.5.2011 Cash 250,000 31.5.2011 Balance c/f 250,000
250,000 250,000

1.6.2011 Balance b/f 250,000

Bicycle a/c
5.5.2011 Kakama 300,000 31.5.2011 Balance c/f 300,000
300,000 300,000

1.6.2011 Balance b/f 300,000

Kakama a/c
15.5.2011 Cash 285,000 5.5.2011 Bicycle 300,000
15.5.2011 Discount received 15,000
300,000 300,000

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 Purchases a/c
6.5.2011 Cash 160,000 25.5.2011 Drawings 25,000
10.5.2011 Ogola 120,000 31.5.2011 Balance c/f 315,000
29.5.2011 Agaba 60,000
340,000 340,000

1.6.2011 Balance b/f 315,000

Sales a/c
31.3.2011 Balance c/f 260,000 8.5.2011 Cash 120,000
12.5.2011 Akello 90,000
26.5.2011 Okello 50,000
260,000 260,000
1.6. 2011 Balance b/f 260,000

Ogola a/c
18.5.2011 Purchases returns 20,000 10.5.2011 Purchases 120,000
31.5.2011 Balance c/f 100,000
120,000 120,000

1.6.2011 Balance b/f 100,000

Akello a/c
12.5.2011 Sales 90,000 16.5.2011 Sales returns 10,000
21.5.2011 Cash 76,800
21.5.2011 Discount allowed 3,200
90,000 90,000

Wages a/c
13.5.2011 Cash 12,000 1.5.2011 Balance c/f 12,000
12,000 12,000

1.6.2011 Balance b/f 12,000

Discount received a/c

31.5.2011 Balance c/f 15,000 15.5.2011 Kakama 15,000
15,000 15,000

1.6. 2011 Balance b/f 15,000

Purchases returns a/c
31.5.2011 Balance c/f 20,000 18.5.2011 Ogola 20,000
20,000 20,000

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 31.5.2011 Balance b/f 20,000

Sales returns a/c

16.5.2011 Akello 10,000 31.5.2011 Balance c/f 10,000
10,000 10,000

1.6.2011 Balance b/f 10,000

Discount allowed a/c

21.5.2011 Akello 3,200 31.5.2011 Balance c/f 3,200
3,200 3,200

1.6.2011 Balance b/f 3, 200

Drawing a/c
25.5.2011 Purchases 25,000 31.5.2011 Balance c/f 30,000
30.5.2011 Cash 5,000
30,000 30,000

1.6.2011 Balance b/f 30,000

Okello a/c
26.5.2011 Sales 50,000 31.5.2011 Balance c/f 50,000
50,000 50,000

1.6.2011 Balance b/f 50,000

Electricity a/c
28.5.2011 Cash 3,000 31.5.2011 Balance c/f 3,000
3,000 3,000
1.6.2011 Balance b/f 3,000

Agaba a/c
31.5.2011 Balance c/f 60,000 29.5.2011 Purchases 60,000
60,000 60,000
1.6.2011 Balance b/f 60,000

Rent a/c
31.5.2011 Cash 10,000 31.5.2011 Balance c/f 10,000
10,000 10,000

1.6.2011 Balance b/f 10,000

FINANCIAL ACCOUNTING
Take home Exercise

For each of the following, state the double entry required to record each of the following
transactions in the books Ali.

Ali invested his savings of Shs 3 million cash to a shop.

Paid Shs 200,000 cash to rent the shop.
Bought inventory for cash at Shs 2,000,000.
Sold goods for cash at Shs 500,000.
Bought goods for Shs 400,000 on credit.
Sold goods for Shs 600,000 on credit.
Returned damaged goods for Shs 50,000 to the credit supplier.
A customer returned spoilt goods bought at Shs 80,000 to the shop.
Ali took goods purchased at shs 30,000, with a selling price of Shs 35,000 for personal use.
Received a bill for Shs 60,000 for electricity used at the shop.
Paid the credit supplier the whole balance by cash and received a cash discount of 2%.
Received cash from the credit customer for the whole amount outstanding, less 1%.

FINANCIAL ACCOUNTING