Slide 2.

Chapter 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

 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 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
 Activity
Slide 2.17

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

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

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

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 2.22

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