The document discusses the double entry system of accounting and how it applies to various cash transactions. It explains that every transaction has a dual effect that is recorded with debits on one side and credits on the other. It then provides examples of how initial capital, cash purchases, cash sales, payment of expenses, and purchases of fixed assets would be recorded through debits and credits to different accounts like assets, income, expenses, and capital. The purpose is to illustrate the double entry system and how it reveals the dual effects of common cash-based transactions.

1. Double entry for cash transactions
Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
Investment Advisor, International School Teacher
071 25 45 001

2. Content
* Double Entry System
* Structure of an Account
* Cash Transactions
* Initial Capital & Additional Capital
* Cash Purchases
* Cash Sales
* Payment of expenses
* Purchases of Fixed Assets
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3. Double Entry System
Every transaction has a dual effect on the business and
therefore, should be recorded twice to reveal this effect.
Recording this effect in debit side and other in credit side is
called double entry system.
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Types of
Accounts
Normal
Balance Increase Decrease
Assets Debit Debit Credit
Expenditure Debit Debit Credit
Income Credit Credit Debit
Liabilities Credit Credit Debit
Capital Credit Credit Debit

4. Account
Account is the model used to record the transactions based on
double entry system.
Structure of an Account
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Date Details £ Date Details £
Left hand side of the
page.
Right hand side of the
page.
(Debit Side) (Credit Side)
Dr Name of the Account Cr

5. Providing Initial Capital or Additional Capital
According to the Accounting Entity Concept (Business Entity
Concept) transactions regarding even with the owner/s of the
business should be recorded in relevant accounts.
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Impacts
Capital – Increase  Capital Account - Cr
Assets – Increase  Assets Account - Dr

6. Cash Purchases
Cash purchases means that business organization buys goods by
paying cash or by issuing cheques.
Only the goods purchased with the intention of re-
sale are recorded in the purchase account. The main
expense account of a trading business is the
purchases account.
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Impacts
Assets – Decrease  Cash/ Bank Account - Cr
Expenses – Increase  Purchases Account - Dr

7. Cash Sales
Cash Sales means that business organization sells goods by
obtaining cash or cheques.
Sales Account is the main income account of a
trading business.
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Impacts
Income – Increase  Sales Account - Cr
Assets – Increase  Cash/ Bank Account - Dr

8. Payment of Expenses
Usually business organizations can pay their expenses by cash or
cheques. Those are called cash expenses. Cash expenses can be
recorded in accounts as follows.
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Impacts
Assets – Decrease  Cash/ Bank Account - Cr
Expenses – Increase  Expenses Account - Dr

9. Purchases of Fixed Assets
Business can purchase non-current assets (fixed assets) by
paying cash or cheques. When business purchases fixed assets
by paying cash or cheques current asset’s balance of the
business decreases and non-current asset’s balance of the
business increases.
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Impacts
Assets – Decrease  Cash/ Bank Account - Cr
Asset – Increase  Fixed Asset Account - Dr

10. “The best investment is education…”
All the best…!
Sanjaya Jayasundara