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Similar to Chapter 2 (Part 1) Double Entry Bookkeeping .pdf
Chapter 2 (Part 1) Double Entry Bookkeeping .pdf
- 1. CHAPTER 2: THE DOUBLEENTRY BOOK-KEEPING Part 1
- 2. Learning outcome • Torecord the correct double entry for any transactions involving bank and cash.
- 3. What is doubleentry book-keeping? • In general, book-keeping is the process of recording transactions in a “T” account. • The procedure used is the double entry system. • Hence, the term “ double entry book- keeping”.
- 4.
- 5. “T” Account Debit Credit Debitmeans Left Credit means Right
- 6. “T” Account Dr Cr Abbreviation forDebit Abbreviation for Credit
- 7. Name/Title of account $ $ The“T” Account Detailed Format Date Details Date Details Date of transaction Name of account to be credited Amount Date of transaction Name of account to be debited Amount Dr Cr
- 8. Every “T” Accounthas: ● An increase side, and ● A decrease side ● But, certain accounts increase on the debit side ● And, certain accounts increase on the credit side Why?
- 9. The Duality Concept •Every business transactions will involve two parties. • One party will give (out) something and the other party will receive (in) something in return. • This is called the duality concept.
- 10. You need toremember! For every double entry recording of a transaction, one account will be debited, and another account will be credited. The amount will be the same on both sides. Cash account Dr 300 Cr Sales account Dr Cr 300 opposite but equal amount
- 11. Rule No 1 AssetsLiabilities Premises Trade payables Office equipment Bank overdraft Motor vehicle Bank loan Inventory Trade receivables Bank Cash Debit Credit
- 12. Example 1 The businesspurchased a motor vehicle and paid $8 000 in cash.
- 13. Step 1: Identifythe accounts affected Motor vehicle Cash The business purchased a motor vehicle and paid $8 000 in cash.
- 14. Step 2: Determinethe classification of accounts Motor Vehicl e Cash
- 15. Step 3: Determinewhich side is (+) and which side is (-) in both accounts Now that we know the classification, we can identify increase and decrease sides. Motor vehicle account Dr Cr + Dr Cr + Cash account
- 16. Did motor vehicle increaseor decrease in this transaction? A business purchased a motor vehicle and paid $8 000 in cash.
- 17. Increased Motor vehicle account DrCr $8 000 +
- 18. What about cash? Increaseor decrease in this transaction? A business purchased a motor vehicle and paid $8 000 in cash.
- 19.
- 20. Step 4: Recordthe double entry Dr Cash account + $8 000 Cr Motor vehicle account Dr Cr $8 000 +
- 21. Example 2 The businesssold goods for cash, $1 500.
- 22. Step 1: Identifythe accounts affected Cash Inventory The business sold goods for cash, $1 500.
- 23. Step 2: Determinethe classification of accounts Cash Inventory
- 24. Step 3: Determinewhich side is (+) and which side is (-) in both accounts Now that we know the classification, we can identify increase and decrease sides. Cash account Dr Cr + Inventory account Dr Cr +
- 25. Did cash increase ordecrease in this transaction? The business sold goods for cash, $1 500
- 26.
- 27. Did inventory increase ordecrease in this transaction? The business sold goods for cash, $1 500
- 28.
- 29. Step 4: Recordthe double entry Dr Inventory account + $1 500 Cr Cash account Dr Cr $1 500 +
- 30. Example 3 The businessbought goods, $700, with cash.
- 31. Step 1: Identifythe accounts affected Inventory Cash The business bought goods, $700, in cash.
- 32. Step 2: Determinethe classification of accounts Inventory Cash
- 33. Step 3: Determinewhich side is (+) and which side is (-) in both accounts Now that we know the classification, we can identify increase and decrease sides. Inventory account Dr Cr + Dr Cr + Cash account
- 34. Did inventory increase ordecrease in this transaction? The business bought goods, $700, in cash.
- 35.
- 36. What about cash? Increaseor decrease in this transaction? The business bought goods, $700, in cash.
- 37.
- 38. Step 4: Recordthe double entry Dr Cash account + $700 Cr Inventory account Dr Cr $700 +
- 39. Example 4 The businesspaid a cheque amounting $1 000 to a trade payable.
- 40. Step 1: Identifythe accounts affected Trade payable Bank The business paid a cheque amounting $1 000 to a trade payable.
- 41. Step 2: Determinethe classification of accounts Trade payable Bank
- 42. Step 3: Determinewhich side is (+) and which side is (-) in both accounts Now that we know the classification, we can identify increase and decrease sides. Trade payable account Dr Cr + Bank account Dr Cr +
- 43. Did trade payable increaseor decrease in this transaction? The business paid a cheque amounting $1 000 to a trade payable.
- 44. Decreased Trade payable account DrCr $1 000 +
- 45. Did bank increase ordecrease in this transaction? The business paid a cheque amounting $1 000 to a trade payable.
- 46.
- 47. Step 4: Recordthe double entry Dr Bank account + $1 000 Cr Trade payable account Dr Cr $1 000 +
- 48. Example 5 The businessreceived a cheque amounting $3 500 from a trade receivable.
- 49. Step 1: Identifythe accounts affected Bank Trade receivable The business received a cheque amounting $3 500 from a trade receivable.
- 50. Step 2: Determinethe classification of accounts Bank Trade receivable
- 51. Step 3: Determinewhich side is (+) and which side is (-) in both accounts Now that we know the classification, we can identify increase and decrease sides. Bank account Dr Cr + Dr Cr + Trade receivable account
- 52. Did bank increase ordecrease in this transaction? The business received a cheque amounting $3 500 from a trade receivable.
- 53.
- 54. What about trade receivable? Increaseor decrease in this transaction? The business received a cheque amounting $3 500 from a trade receivable.
- 55.
- 56. Step 4: Recordthe double entry Dr Trade receivable account + $3 500 Cr Bank account Dr Cr $3 500 +
- 57. Summary Transactions Debit (Dr) Credit (Cr) Bought motorvehicle with cash Motor vehicle Cash Sold goods on cash basis Cash Inventory Bought goods with cash Inventory Cash Paid a cheque to a trade payable Trade payable Bank Received a cheque from a trade receivable Bank Trade receivable
- 58. Quiz Choose the appropriateanswer in the bracket 1) An increase in an asset account should be on the ______________ (debit or credit) side. 2) A decrease in a liability account should be on the _______________ (debit or credit) side. 3) Debit is on the _________ (left or right) hand side of a T- account 4) Credit is on the __________ (left or right) hand side of a T-account
- 59. 5) A transactioninvolving goods is represented by two accounts. One of the accounts is called the _________ (goods or inventory) account. 6) A transaction involving a cheque is represented by two accounts. One of the accounts is called the _________ (bank or cheque) account.