CHAPTER 3

DOUBLE
ENTRY
CONCEPT

DOUBLE ENTRY SYSTEMS

INTRODUCTION
This Double Systems has been used in all over the world by day.

This System has been developed to ensure all these records been kept
in proper manner.

According to double entry principle, each transaction must be

recorded in at least two ledger Account, with a debit to one more
ledgers and a credit to one another ledger

Accounting Cycle
is a Process
gathering and
processing
accounting data
It is call a
complete cycle
because the phase
in accounting
cycle keep
repeating for each
time and every
transaction .

Document
Sources

First Book
Entry

Financial
Report

ACCOUNTING
CYCLE
Adjusted
Trial
Balance

Trial
Balance

Ledger

DOUBLE ENTRY SYSTEMS

An
Accounting
equation
shows the
relationship
between three
element
Assets
,liability and
owner equity

Assets

Liability

Owner
Equity

DOUBLE ENTRY SYSTEMS

What is double
entry Systems
1.When
transaction
occurs
,it
impact on
element
of
accounting
equation

will
the
its

2.The relationship
between assets and
the
financial
resources used to
finance

Investment
(Financial
Resources)
External
Sources-Bank
Loan ,Account
Payable

Asset owned
by business

Contributio
n from
Owners

DOUBLE ENTRY SYSTEMS

The sum of all debits of the transaction must be equaled to the sum of

credit of transactions
Debit entries will not necessary means an increase in the value of an
account, and the credit will not necessary means a decrease value of
account

TYPES AND FUNCTIONS OF ACCOUNT

Ledger accounts can be divided

into 5 main categories:

Ledger

Revenues, Expenses,
Assets , Liabilities ,Owner
Equity

TYPES AND FUNCTIONS OF ACCOUNT

Revenue

Revenue

Revenue are income earned from business activities through the

selling of goods and providing business
Example revenue are sales revenue from services provided
,commission received ,interest received or rent received

However, revenue may be received from extraordinary business

such as profit sale of used assets and dividend from investment
The receipt of revenue will increase the profit and capital of a
business entity
A revenue account has a credit balance

TYPES AND FUNCTIONS OF ACCOUNT

Operating expenses refers to expenditure for formal business activities
Examples are purchase of goods ,employer salaries and wages and freight
Expenses charges

If expenses are not incurred as a result of business operation ,then the

expenses are for non-ordinary business activities such as Loss of Sale used
Assets, donation.
Expenses An expenses have debit balance

The journal entries for payment of expenses:

Dt.Expenses
Expenses Ct. Cash \Bank

TYPES AND FUNCTIONS OF ACCOUNT

Assets
Assets are resources or properties used to help operate business
Asset can be divided into 2 main categories-

Non Current Assets and Currents Assets

Assets account have a debit balance

TYPES AND FUNCTIONS OF ACCOUNT

Types of Assets
Types of
Assets

Characteristics

Example

Debit /balance

Fixed Assets

a)

Assets life is
longer than
one
accounting
period
b) Can be used
repeatedly
c) Fixed Value

a)

Debit Balance

a)

a)
b)
c)
d)

Current Assets

Asset that
are easily
converted
into cash

b)
c)

Land and
Premises
Vehicles
Office
equipment

Cash
Debtor
Inventories
Prepaid
Expenses
e) Accrued
revenue

Debit Balance

TYPES AND FUNCTIONS OF ACCOUNT

Liabilities
Liabilities are debt owed by a business entity to external party
Liabilities can be divided into non current liabilities and non current

liabilities

TYPES AND FUNCTIONS OF ACCOUNT

Types of Liabilities
Liabilities

Characteristics

Example

Debit /balance

Long term
liabilities

a)

Debts that
must be paid
off after one
accounting
period

a)
b)
c)

Credit Balance

Current
Liabilities

a)

Debts that
must be paid
off within
one
accounting
period

a) Creditors
b) Bank Overdraft

Bank loan
Debentures
Mortgage

Credit Balance

TYPES AND FUNCTIONS OF ACCOUNT

Owner Equity (Capital Account)
The business owner will invest a certain amount of money or assets into

the business as the initial capital

The total amount of cash or assets initially invested belong to the
business owner
The owner equity is the business debt to the business owner based on
the amount invested by the business owner
The total amount of owner equity will be determined by the capital
,drawings and business performance.

TYPES AND FUNCTIONS OF ACCOUNT

Owner Equity
Equity

Characteristics

Debit /balance

Capital

a)

Cash and Assets brought into

the business by the owner

Credit Balance

Drawings

a)

Cash/goods/Assets taken by
owner for personal use
Reduction of owner equity

Debit Balance

Calculate the Closing Account

Owner equity is increased if
business generates a profit

Debit or Credit balance

b)
Profit Loss

a)
b)

Transactions and the double entry principles

Transaction

Account
Debited

Account
Debited

a) Cash inflows

Cash/Bank

Sales/Debtor/
Revenue/Capital

b) Cash outflows

Purchase
Creditor
Expenses
Drawing
Assets

Cash/Bank

c) Purchase of Goods:
Cash Purchase
Credit Purchase

Purchase
Purchase

Cash/Bank
Creditors

d) Sales:
Cash Sales
Credit Sales

Cash/Bank
Debtor

Sales
Sales

e) Returns Inwards/Sales Returns

Returns Inwards

Debtor

f) Returns Outwards/Purchase

Creditors

Returns Outwards

Transactions and the double entry principles

Transaction

Account
Debited

Account
Credited

Asset
Asset

Cash/Bank
Creditor

Cash/Bank
Debtors

Asset
Asset

h)Capital:
Resources brought into business by owner
Cash
Bank
Assets

Cash
Bank
Asset

Capital
Capital
Capital

i) Drawings:

Drawings

Cash
Bank
Purchase
Asset

g)Assets: Business Resources

Purchase of Assets (Cash)
(Credit)
Sales: Selling of used asset (Cash)
(Credit)

Cash or goods assets withdrawn by the owner for personal use

Transactions and the double entry principles

Transaction

Account
Debited

Account
Credited

j) Payment of expenses

Expenses

Cash/Bank

k) Receipt of revenue

Cash\Bank

Revenue

l) Debtors:
Customer who purchased goods on credit

Debtor

Sales

Sale of Goods on credit to customer

Return Inwards

Debtor

Debtor returned goods

Discount allowed

Discount Allowed

Debtor

Received Cash or cheque from debtors

Cash\Bank

Debtor

Transactions and the double entry principles

Transaction

m) Creditor: Supplier who supplied goods on credit

Purchase of goods on credit
Return of goods to creditor
Discount received
Payment to creditors by cash or cheque

Account
Debited

Account
Credited

Purchase
Creditor
Creditor
Creditor

Creditor
Return Outwards
Discount Received
Cash\Bank

Cash\Bank
-

Loan
-

n)Liabilities
Bank Loan
Approved bank Overdraft

Double Entry Accounting

Double Entry Accounting

Double Entry Accounting

Example :Transaction and Double Entry Principle

Example: Transaction and Double Entry Principle

Example: Transaction and Double Entry Principle

QUESTION &
ANSWER
SESSION

EXERCISE AND
TUTORIAL
SESSION