Slide 2.

Lecture 2
The double entry system for
assets, liabilities and capital

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.2

Learning objectives
After you have studied this chapter, you
should be able to:
 Explain what is meant by ‘double entry’
 Explain how the double entry system
follows the rules of the accounting equation
 Explain why each transaction is recorded
into individual accounts
 Describe the layout of a ‘T-account’

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.3

Learning objectives (Continued)

 Explain what is meant by the terms debit
and credit
 Explain the phrase ‘debit the receiver and
credit the giver’
 Prepare a table showing how to record
increases and decreases of assets,
liabilities and capital in the accounts
 Enter a series of transactions into
T-accounts
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.4

The double entry system

 Business activities are called transaction
 Every transaction is recorded in an account
in the accounting books
 Every transaction affects two items
(accounts).
 This is double entry bookkeeping.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.5

A double entry account

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.6

How recording in an account

affects items

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.7

Or, to see this in the accounts

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.8

Activity
The owner starts the business with
£10,000 in cash on 1 August 2012.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.9

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.10

Activity (Continued)
A van is bought for £4,500 in cash on 2
August 2012.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.11

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.12

Activity (Continued)
Fixtures (e.g. shelves) are bought on
credit from Shop Fitters for £1,250 on 3
August 2008.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.13

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.14

Activity (Continued)
Paid the amount owning to Shop Fitters in
cash on 17 August 2012.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.15

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.16

Activity (Continued)
Combining all four of these transactions,
the accounts now contain:

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.17

Activity

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.18

Activity

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.19

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.20

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.21

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.22

Golden rule of double entry

 Debit the receiver
 Credit the giver

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.23

Try this (Effects Action)

• Bought office machinery on credit from D Isaacs
Ltd.
• The proprietor paid a creditor, C Jones, from his
private funds.
• A debtor, N Fox, paid us in cash.
• Repaid part of loan from P Exeter by cheque.
• Returned some of office machinery to D Isaacs
Ltd.
• A debtor, N Lyn, pays us by cheque.
• Bought van by cash.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.24

Try this (write up the accounts)

2017
July 1 Started business with £15,000 in the bank.
== 2 Bought office furniture by cheque £1,200.
== 3 Bought machinery £1,400 on credit from Trees Ltd.
== 5 Bought a van paying by cheque £6,010.
== 8 Sold some of the office furniture – not suitable for
the business – for £150 on credit to D Twig & Sons.
== 15 Paid the amount owing to Trees Ltd £1,400 by
cheque.
== 23 Received the amount due from D Twig & Sons
£150 in cash.
== 31 Bought more machinery by cheque £650.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.25

Assignment 1
 Answer questions 2.2A, 2.4 and 2.5A to be
submitted via schoology before our next
meeting. Visit schoology for details

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.26

Learning outcomes
You should have now learnt:
1. That double entry follows the rules of the
accounting equation
2. That double entry maintains the principle
that every debit has a corresponding credit
entry
3. That double entries are made in accounts
in the accounting books

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 2.27

Learning outcomes (Continued)

4. Why each transaction is entered into
accounts rather than directly into the
statement of financial position
5. How transactions cause increases and
decreases in asset, liability and capital
accounts
6. How to record transactions in T-accounts

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012