Double-Entry Accounting

“ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.”

Scale or Balance

T account Left Side Receive DEBIT
Right Side Give CREDIT

Luca Pacioli Developer of Double-Entry Accounting

Receive DEBIT

Give CREDIT
C2 - 1

Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS received

=

CREDITS given

C2 - 2

Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS received

=

CREDITS given

Assets

C2 - 3

Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS received

=

CREDITS given

Assets

Expenses

C2 - 4

Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS received

=

CREDITS given

Liabilities
Assets

Expenses

C2 - 5

” DEBITS received = CREDITS given Liabilities Assets Owner’s Equity Expenses C2 .Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.6 .

7 .Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received = CREDITS given Liabilities Assets Owner’s Equity Expenses Revenues C2 .

8 .” DEBITS received = CREDITS given Liabilities Assets Owner’s Equity Net Income Expenses Revenues C2 .Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.

I started a sole proprietorship called NetSolutions.NetSolutions A Sole Proprietorship “ On November 1.” Chris Clark. 2002. The following double-entry transactions show how amounts received (debits) always equal amounts given (credits).9 . I plan to use my knowledge of microcomputers and offer computer consulting services for a fee. Owner C2 .

Chris Clark deposits $25. receive Debit Chris Clark (investor) NetSolutions (investee) give give Credit Credit General Journal Date Description Debit Credit 11/1 C2 .000 in a bank account for NetSolutions.10 .Business Transactions Entry A.

Chris Clark deposits $25. Cash Chris Clark (investor) receive Debit NetSolutions (investee) give give Credit Credit General Journal Date Description Debit Credit 11/1 Cash 25.Business Transactions Entry A.000 in a bank account for NetSolutions.11 .000 C2 .

000 C2 . Capital 25.12 .000 25.000 in a bank account for NetSolutions. Chris Clark deposits $25. Cash Chris Clark (investor) A promise to the owner receive Debit NetSolutions (investee) give give Credit Credit General Journal Date Description Debit Credit 11/1 Cash Chris Clark.Business Transactions Entry A.

Business Transactions Entry B.000. Land Owner (seller) NetSolutions buys land for $20.13 . receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/5 C2 .

000.14 . Land Owner (seller) NetSolutions buys land for $20.000 C2 .Business Transactions Entry B. Land receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/5 Land 20.

15 .000.000 C2 .000 20.Business Transactions Entry B. Land Owner (seller) NetSolutions buys land for $20. Land Cash receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/5 Land Cash 20.

16 . NetSolutions buys supplies for $1. agreeing to pay in the near future.Business Transactions Entry C.350. receive Debit Supplier (seller) NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/10 C2 .

350.17 .Business Transactions Entry C. NetSolutions buys supplies for $1. agreeing to pay in the near future. Supplies Supplier (seller) receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/10 Supplies 1.350 C2 .

350 1.Business Transactions Entry C. agreeing to pay in the near future. Supplies Supplier (seller) A promise to pay later receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/10 Supplies Accounts Payable 1.18 . NetSolutions buys supplies for $1.350.350 C2 .

NetSolutions earns fees of $7. receive Debit Customer (buyer) NetSolutions (seller) give give Credit Credit General Journal Date Description Debit Credit 11/18 C2 .Business Transactions Entry D. receiving cash.19 .500.

Cash Customer (buyer) receive Debit NetSolutions (seller) give give Credit Credit General Journal Date Description Debit Credit 11/18 Cash 7. receiving cash.500 C2 .500. NetSolutions earns fees of $7.Business Transactions Entry D.20 .

NetSolutions earns fees of $7. receiving cash.500.21 .500 C2 .500 7.Business Transactions Entry D. Cash Customer (buyer) Services receive Debit NetSolutions (seller) give give Credit Credit General Journal Date Description Debit Credit 11/18 Cash Fees Earned 7.

$275. $800. utilities. rent. $2.125. $450. NetSolutions paid: wages. receive Debit Various suppliers NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit C2 .Business Transactions Entry E.22 . and miscellaneous.

$800. NetSolutions paid: wages. and miscellaneous. benefits receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/18 Wages Expense Rent Expense Utilities Expense Misc. Expense 2.125 800 450 275 C2 . rent. $450.125. $275. $2. utilities.23 . Various suppliers Services.Business Transactions Entry E.

125. Expense Cash 2. $800.24 . and miscellaneous.125 800 450 275 3.650 C2 . benefits Cash receive Debit NetSolutions (buyer) give give Credit Credit General Journal Date Description Debit Credit 11/18 Wages Expense Rent Expense Utilities Expense Misc. rent. $2. $450. utilities.Business Transactions Entry E. Various suppliers Services. $275. NetSolutions paid: wages.

NetSolutions pays $950 to creditors on account.25 .Business Transactions Entry F. give give Credit Credit Supplier (payee) receive Debit NetSolutions (payor) General Journal Date Description Debit Credit 11/30 C2 .

Business Transactions Entry F. NetSolutions pays $950 to creditors on account. Supplier (payee) Reduction in obligation receive Debit NetSolutions (payor) give give Credit Credit General Journal Date Description Debit Credit 11/30 Accounts Payable 950 C2 .26 .

Business Transactions Entry F.27 . Supplier (payee) Reduction in obligation Cash receive Debit NetSolutions (payor) give give Credit Credit General Journal Date Description Debit Credit 11/30 Accounts Payable Cash 950 950 C2 . NetSolutions pays $950 to creditors on account.

Business Transactions Entry G. At the end of the month. receive Debit Internal Transaction (no external entity) NetSolutions (user) give give Credit Credit General Journal Date Description Debit Credit 11/30 C2 .28 . the cost of supplies on hand is $550.

350 less $550 on hand = $800 used C2 . At the end of the month.Business Transactions Entry G.29 . Internal Transaction (no external entity) Use of supplies receive Debit NetSolutions (user) give give Credit Credit General Journal Date Description Debit Credit 11/30 Supplies Expense 800 Balance of Supplies account $1. the cost of supplies on hand is $550.

At the end of the month.350 less $550 on hand = $800 used C2 .Business Transactions Entry G. Internal Transaction (no external entity) Use of supplies Supplies receive Debit NetSolutions (user) give give Credit Credit General Journal Date Description Debit Credit 11/30 Supplies Expense Supplies 800 800 Balance of Supplies account $1.30 . the cost of supplies on hand is $550.

Business Transactions Entry H. give give Credit Credit Chris Clark (payee) receive Debit NetSolutions (payor) General Journal Date Description Debit Credit 11/30 C2 .000 in cash. Chris Clark withdraws $2.31 .

Chris Clark withdraws $2. Drawing 2.Business Transactions Entry H.000 in cash. Chris Clark (payee) Reduction in obligation receive Debit NetSolutions (payor) give give Credit Credit General Journal Date Description Debit Credit 11/30 Chris Clark.000 C2 .32 .

000 2. Chris Clark (payee) Reduction in obligation Cash receive Debit NetSolutions (payor) give give Credit Credit General Journal Date Description Debit Credit 11/30 Chris Clark.33 . Chris Clark withdraws $2.Business Transactions Entry H.000 in cash. Drawing Cash 2.000 C2 .

34 . Capital Chris Clark. 21 23 3. 51 52 54 55 59 Expenses Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense C2 .NetSolutions Chart of Accounts Balance Sheet 1. Revenue 41 Fees Earned 5. Drawing Income Statement 4. 31 32 Assets Cash Accounts Receivable Supplies Prepaid Insurance Land Office Equipment Liabilities Accounts Payable Unearned Rent Owner’s Equity Chris Clark. 11 12 14 15 17 18 2.

500 2.000 7. Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 5.900 C2 . 2002 11 14 17 21 31 32 41 51 52 54 55 59 Cash Supplies Land Accounts Payable Chris Clark.900 550 20. Capital Chris Clark.000 400 25.35 .125 800 450 800 275 32.NetSolutions Trial Balance November 30.000 2.900 32.

900 C2 .900 550 20. Capital Chris Clark.000 400 25.500 2.125 800 450 800 275 32.900 32. Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 5.36 .000 2. 2002 Balance Sheet 11 14 17 21 31 32 41 51 52 54 55 59 Cash Supplies Land Accounts Payable Chris Clark.000 7.NetSolutions Trial Balance November 30.

Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense 5.500 2. 2002 Income Statement 11 14 17 21 31 32 41 51 52 54 55 59 Cash Supplies Land Accounts Payable Chris Clark.000 400 25.37 .NetSolutions Trial Balance November 30.000 7. Capital Chris Clark.900 550 20.125 800 450 800 275 32.900 C2 .900 32.000 2.

Trial Balance 1. Transactions are analyzed and recorded in journal. Ledger.38 . Documents Journal C2 .Journal.

Ledger.39 . Transactions are posted from journal to ledger. Trial Balance 1. Journal Ledger C2 . Transactions are analyzed and recorded in journal.Journal. Documents Journal 2.

Journal Ledger 3. Trial Balance C2 . Trial balance is prepared.40 . Transactions are posted from journal to ledger. Documents Journal 2. Ledger. Trial Balance 1.Journal. Transactions are analyzed and recorded in journal.

C2 . Analyze and record the transaction as shown.41 .Recording and Posting an Entry General Journal Date Description Post. Post the credit side of the transaction.400 1. Post the debit side of the transaction. Ref.400 2. 3. Debit Page 1 Credit 12/1 Prepaid Insurance Cash 2. 2.

Debit Page 1 Credit 12/1 1 Prepaid Insurance Cash 2.42 . 15 Balance Credit Debit Credit 12/1 1 Enter the transaction date in the ledger account.400 2. Debit Account No.400 General Ledger Account: Prepaid Insurance Post. Date Item Ref.Recording and Posting an Entry General Journal Date Description Post. Ref. C2 .

C2 . Date Item Ref. Debit Account No.400 2 Enter the debit amount in the ledger debit column.Recording and Posting an Entry General Journal Date Description Post. Ref.400 General Ledger Account: Prepaid Insurance Post. 15 Balance Credit Debit Credit 12/1 1 2.400 2.43 . Debit Page 1 Credit 12/1 Prepaid Insurance Cash 2 2.

C2 . Debit Account No.44 . Debit Page 1 Credit 12/1 Prepaid Insurance Cash 2.Recording and Posting an Entry General Journal Date Description Post.400 3 3 Update the ledger account balance.400 2. 15 Balance Credit Debit Credit 12/1 1 2. Ref.400 2. Date Item Ref.400 General Ledger Account: Prepaid Insurance Post.

Debit Page 1 Credit 12/1 Prepaid Insurance Cash 4 2. Debit Account No. 15 Balance Credit Debit Credit 12/1 1 4 Enter the journal page in the ledger account.45 . Ref.400 General Ledger Account: Prepaid Insurance Post. Date Item Ref.Recording and Posting an Entry General Journal Date Description Post.400 2. C2 .

46 . Debit Page 1 Credit 12/1 Prepaid Insurance Cash 15 2. C2 .400 2.400 5 General Ledger Account: Prepaid Insurance Post. Date Item Ref. Ref. Debit Account No. 15 Balance Credit Debit Credit 12/1 1 2.400 2.Recording and Posting an Entry General Journal Date Description Post.400 5 Enter the ledger account number in the journal.

11 Date Item Debit Credit Balance Debit Credit 11/30 12/1 Balance 1 2.500 3 All five parts of the credit posting are shown.400 5. Account No.Recording and Posting an Entry General Journal Date Description Post.47 . Ref. Ref.400 5 2 General Ledger Account: Cash Post. C2 .900 3.400 2. Debit Page 1 Credit 12/1 1 Prepaid Insurance Cash 4 15 11 2.

incorrect not posted correct Journal C2 .Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure 1.48 .

Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure 1. correct not posted incorrectly posted correct Journal correct Ledger C2 .49 . incorrect 2.

correct 3. C2 . incorrect 2. incorrect not posted incorrectly posted already posted correct Journal correct Ledger record and post a correcting entry Error 3 requires a correcting journal entry.Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure 1.50 .

500 What part of this entry is incorrect? What correcting entry would you make? C2 . General Journal – As recorded and posted Date Description Debit Credit 5/5 Supplies 12.51 .Correcting Errors – An Example On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.500 Accounts Payable 12.

500 General Journal – A correcting entry Date Description Debit Credit 5/5 C2 .Correcting Errors – An Example On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.52 .500 Accounts Payable 12. General Journal – As recorded and posted Date Description Debit Credit 5/5 Supplies 12.

500 Accounts Payable 12.500 C2 .53 .Correcting Errors – An Example On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.500 General Journal – A correcting entry Date Description Debit Credit 5/5 Office Equipment 12. General Journal – As recorded and posted Date Description Debit Credit 5/5 Supplies 12.

General Journal – As recorded and posted Date Description Debit Credit 5/5 Supplies 12.500 Accounts Payable 12.500 General Journal – A correcting entry Date Description Debit Credit 5/5 Office Equipment 12.Correcting Errors – An Example On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.500 C2 .54 .500 Supplies 12.

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