Double entry notes

1. Double entry book keeping
Chapter 2

2. Double entry book keeping
Is the process of making a debit
entry and a credit entry for each
transaction.

4. A ledger is a book of
secondary entry
used to keep book
keeping entries for
financial
statements.
Ledger accounts are divided into two
sections.
The left side is known as debit
the right side is known as credit.
Accounts which are
gaining or receiving
value are debited.
Accounts which are
giving up the value
are credited.
Debit side
Credit side

5. Credit side
ledger accounts are
also known as
T- accounts
as the debit and credit
side of the accounts
replicate the alphabet T
The Accounts can also be shown in the
following form instead of making a
table
Debit side

13. Income is the
revenue a business
earns from selling its
goods and services
or the money an
individual receives
in compensation for
his or her labor.
An expense in
accounting is the
money spent, or
costs incurred, by a
business in their
effort to generate
revenues

24. Drawings will reduce the
amount of capital (the amount
business owe to the owner)
Drawings represent
any value taken
from the business
by the owner of
that business.
Drawings will reduce the
account from which the value
has been take and it will
increase the amount for
drawings account hence the
drawings account will be
debited.

25. Example:
Saladdin took the car motor car worth $5000 for personal use

26. Since drawings account gaining value
its debit
the account giving up the value will be
credit

27. Balancing ledger accounts
1: calculate the total of the t-account (debit and
credit) and find the difference.
2: Enter the difference on the next available line on
the side which is smaller in money.
3: Under date, write down the last date of the
month, details write down 'balance' and under folio
write 'c/d' which is the abbreviation of carried
down.
4: Now write down the total of each side with a line
above and below.

28. Balancing ledger accounts
5: After inserting balance c/d on the side which was
short, the balance of debit and credit of the
account should be equal.
6: On line below the totals, write down the amount
of the balance on the opposite side to where the
words 'Balance c/d' were written.
7: Again, enter the first date of the month under
date, the word 'balance' under details and 'b/d'
under folio which is the abbreviation of brought
down.

29. Balancing ledger accounts
Let's continue the same example's bank account on 7th January and balance
it to get the balance c/d & balance b/d figure.

30. Balancing ledger accounts
1 Let's calculate the difference:
The total of debit side is 95095
where as the total of credit side is 39700, hence the credit side is short with
55395.
2: Enter the difference on the credit side
3: Enter last date of the month (31st January) Balance under Details and c/d
under folio.

31. Balancing ledger accounts
4 Total both sides & after inserting the balance c/d figure the total of both
sides should be equal.
5 The total figure on both side should have a line under and over.

32. Balancing ledger accounts
6 Insert Balance b/d figure to the opposite side where balance c/d figure was
inserted, first date of the month under date column, balance under details
column and b/d under folio column.

33. Sales represent the revenue
generated from the sale of
inventory
Purchases
represent goods
purchased for
resale in a business
(invenotry).
Though purchases and sales
represent the same goods
(inventory) it is necessary to
write them down separately as
Purchases represent Cost
Sales represent Selling price

34. Goods purchased on credit
1: Purchases account will be debited as it will gain value
Trade payable account (trade creditor) will be credited as it will give up value.
2 Once the amount is paid
then Trade payable account will be debited as it will gain value
Bank or cash account will be credited as it will give up value.
Goods purchased for cash Purchases account will be debited as it will gain
value
Bank or cash account will be credited as it will lose value

35. Trade creditor A trade creditor is a supplier who has sent your business
goods, or supplied it with services, who you haven't yet paid
Example

39. Goods sold on credit
1: Sales account will be credited as it will give up value.
Trade receivable account (trade debtor) will be debited as it will give up value.
2 Once the amount is paid
then Trade receivable account will be credited as it will give up value
Bank or cash account will be debited as it will gain value.
Goods sold for cash Sales account will be credited as it will give up value
Bank or cash account will be debited as it will gain value

40. Trade receivable or trade debtor Trade receivables are defined as the amount
owed to a business by its customers following the sale of goods or services on
credit.
Example

44. Sales Return when a customer
returns the goods sold to him / her
due to any reason it is known as
sales return or return inwards.
Purchases Return some times a
business may return the goods
bought to supplier due to any
reason for example the goods were
faulty, were received damaged etc.
this is known as purchases return or
return outwards.
Purchases return
will decrease the value of purchases and a special
account named as purchases returns or returns
outwards is created and credited to show amout going
out
The supplier's account will be debited to show the
amount going out as supplier is gaining value
Sales return
will decrease the value of sales and a special account
named as sales returns or returns inwards is created
and debited to show amount coming in
The customer's account will be credited to show the
amount or value coming from

45. Example

52. Carriage outwards is the cost of
delivering the goods to the
customers.
Carriage inwards is the cost of
bringing the goods to the business.
The term carriage means the cost of transportation
When a business incur carriage inwards cost :
Debit - carriage inwards account as it receives value /
money
Credit- bank or if money is not paid to the supplier
then supplier's account
Same treatment for carriage outwards account as well

53. Three column ledger accounts
are computer generated accounts and follow the same accounting principles
only difference is it will have debit and credit column side by side and then another
column of 'balance' where the resultant amount will be shown
Example