3 The double entry system of

bookkeeping
 Lesson objectives

• By the end of this lesson you will be able to:

• outline the double entry system of book-keeping
• process accounting data using the double entry
system
• prepare ledger accounts
 Double entry system of book-
keeping

• Why is it impossible to prepare a statement of financial

position of a business after every business transaction?
 Double entry system.
• Data, after being collected from source documents such as
invoices will be recorded using the double entry system.
• The system requires that each transaction is recorded in two
different accounts.
• The act of using one book to transfer entries into accounts in
another book, in order to complete double entry, is known as
posting.
 Processing accounting data using the double
entry system
• Accounts are records that are usually represented by an individual page in the
ledgers.
• Every asset, liability, income, expense and capital will have its own individual
page.
• On this page, debit and credit entries are made in date order whenever
transactions that affect that asset, liability, income, expense or capital account
take place.
• Because of the double entry system, each transaction of a
business will affect a combination of two or more
accounts from the statement of financial position and/or
the income statement.
• Every page of a ledger that bears an account is divided into half.
• The debits, abbreviated to ‘dr’, are shown on the left and the credits, abbreviated
to ‘cr’, on the right.
• The name of the account is placed above the ‘T’.
• If an account is to be debited, an entry is made on the left-hand side of the
account.
• If an account is to be credited, an entry is made on the right-hand side.
The layout of an account is
shown below:
how the rules of double entry work for
statement of financial position
items: