Slide 2.

Chapter 2
The double entry
system for assets,
liabilities and capital
Frank Wood and Alan Sangster, Frank Woods 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 Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Learning objectives
(Continued)

Slide 2.3

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 Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 2.4

The double entry system

Every transaction affects two

items.
These effects need to be shown

in the accounting books.

This is double entry

bookkeeping.

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

Slide 2.5

Double-Entry
Double-Entry Accounting
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

Luca Pacioli
Developer of
Double-Entry
Accounting

T account
Left Side
Receive
DEBIT

Receive
DEBIT

Right Side
Give
CREDIT

Give
CREDIT

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

Slide 2.6

A double entry account

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

The Debit-Credit
Framework

Slide 2.7

A = L + OE
ASSETS

LIABILITIES

EQUITIES

Debit
Credit
for
for
Increase Decrease

Debit
Credit
for
for
Decrease Increase

Debit
Credit
for
for
Decrease Increase

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

Slide 2.8

The Rules of Debit and Credit

Debit

Account

Credit

Increase in Assets

Decrease in Assets

Decrease in Liabilities

Increase in Liabilities

Decrease in Owners Equity

Increase in Owners Equity

Decrease in Revenue

Increase in Revenue

Increase in Expenses

Decrease in Expenses

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

Slide 2.9

Expansion of Basic Equation

Assets
Assets

Liabilities
Liabilities

Owners Equity
Capital

Revenue

Drawings

Expenses

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

How recording in an
account
affects items

Slide 2.10

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

Slide 2.11

Or, to see this in the accounts

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

Slide 2.12

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

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

Slide 2.13

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

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

Slide 2.14

Activity
(Continued)

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

Slide 2.15

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 Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 2.16

Activity (Continued)

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

Slide 2.17

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

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

Slide 2.18

Activity (Continued)

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

Slide 2.19

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

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

Slide 2.20

Activity

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

Slide 2.21

Activity (Continued)

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

Slide 2.22

Activity (Continued)

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

Slide 2.23

Activity (Continued)

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

Slide 2.24

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 Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Learning outcomes
(Continued)
Slide 2.25

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 Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012