Introduction to Double Entry System

1. CHAPTER 2:
THE DOUBLE ENTRY
BOOK-KEEPING
Part 1

2. Learning outcome
• To record the correct double entry for any
transactions involving bank and cash.

3. What is double entry 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. “T” Account
Debit Credit
SHAPED
LIKE a
“T”

5. “T” Account
Debit Credit
Debit means
Left
Credit means
Right

6. “T” Account
Dr Cr
Abbreviation
for Debit
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” Account has:
● 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 to remember!
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
Assets Liabilities
Premises Trade payables
Office equipment Bank overdraft
Motor vehicle Bank loan
Inventory
Trade receivables
Bank
Cash
Debit Credit

12. Example 1
The business purchased a motor vehicle
and paid $8 000 in cash.

13. Step 1: Identify the accounts affected
Motor
vehicle
Cash
The business purchased a motor vehicle
and paid $8 000 in cash.

14. Step 2: Determine the classification of
accounts
Motor
Vehicl
e
Cash

15. Step 3: Determine which 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
increase or decrease
in this transaction?
A business purchased a motor vehicle
and paid $8 000 in cash.

17. Increased
Motor vehicle account
Dr Cr
$8 000
+

18. What about cash?
Increase or decrease
in this transaction?
A business purchased a motor vehicle
and paid $8 000 in cash.

19. Decreased
Cash account
Dr Cr
$8 000
+

20. Step 4: Record the double entry
Dr
Cash account
+
$8 000
Cr
Motor vehicle account
Dr Cr
$8 000
+

21. Example 2
The business sold goods for cash, $1 500.

22. Step 1: Identify the accounts affected
Cash
Inventory
The business sold goods for cash, $1 500.

23. Step 2: Determine the classification of
accounts
Cash
Inventory

24. Step 3: Determine which 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
or decrease in this
transaction?
The business sold goods for cash, $1 500

26. Increased
Cash account
Dr Cr
$1 500
+

27. Did inventory increase
or decrease in this
transaction?
The business sold goods for cash, $1 500

28. Decreased
Inventory account
Dr Cr
$1 500
+

29. Step 4: Record the double entry
Dr
Inventory account
+
$1 500
Cr
Cash account
Dr Cr
$1 500
+

30. Example 3
The business bought goods, $700, with cash.

31. Step 1: Identify the accounts affected
Inventory
Cash
The business bought goods, $700, in cash.

32. Step 2: Determine the classification of
accounts
Inventory
Cash

33. Step 3: Determine which 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
or decrease in this
transaction?
The business bought goods, $700, in
cash.

35. Increased
Inventory account
Dr Cr
$700
+

36. What about cash?
Increase or decrease
in this transaction?
The business bought goods, $700, in
cash.

37. Decreased
Cash account
Dr Cr
$700
+

38. Step 4: Record the double entry
Dr
Cash account
+
$700
Cr
Inventory account
Dr Cr
$700
+

39. Example 4
The business paid a cheque amounting $1 000
to a trade payable.

40. Step 1: Identify the accounts affected
Trade
payable
Bank
The business paid a cheque amounting $1 000
to a trade payable.

41. Step 2: Determine the classification of
accounts
Trade
payable
Bank

42. Step 3: Determine which 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
increase or decrease
in this transaction?
The business paid a cheque amounting
$1 000 to a trade payable.

44. Decreased
Trade payable account
Dr Cr
$1 000
+

45. Did bank increase
or decrease in this
transaction?
The business paid a cheque amounting $1 000
to a trade payable.

46. Decreased
Bank account
Dr Cr
$1 000
+

47. Step 4: Record the double entry
Dr
Bank account
+
$1 000
Cr
Trade payable
account
Dr Cr
$1 000
+

48. Example 5
The business received a cheque amounting
$3 500 from a trade receivable.

49. Step 1: Identify the accounts affected
Bank
Trade
receivable
The business received a cheque amounting
$3 500 from a trade receivable.

50. Step 2: Determine the classification of
accounts
Bank
Trade
receivable

51. Step 3: Determine which 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
or decrease in this
transaction?
The business received a cheque amounting
$3 500 from a trade receivable.

53. Increased
Bank account
Dr Cr
$3 500
+

54. What about trade
receivable?
Increase or decrease
in this transaction?
The business received a cheque amounting
$3 500 from a trade receivable.

55. Decreased
Trade receivable
account
Dr Cr
$3 500
+

56. Step 4: Record the double entry
Dr
Trade receivable
account
+
$3 500
Cr
Bank account
Dr Cr
$3 500
+

57. Summary
Transactions Debit
(Dr)
Credit
(Cr)
Bought motor vehicle 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 appropriate answer 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 transaction involving 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.