Double Entry Bookkeeping - T-Accounts

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what is double entry bookkeeping? (double entry accounting) The basis of accounting system is the double entry bookkeeping system. This involves making two entries in the accounts for each transaction. These accounts are kept in ledgers. T- account: T-Accounts are the basic storage units for accounting data and are used to accumulate amounts from similar transactions. An accounting system has a separate account for each asset, each liability, and owners equity. A T-account is divided into two sides by the center line. The left-hand side is the DEBIT side (usually abbreviated to Dr.) and the right-hand side is the credit side (usually abbreviated to Cr.) On each side there are columns in which to record the date, details and amounts of each transaction. Because of the dual nature of every transaction, two entries are made a debit in one account and a credit in another account. Double Entry Rule: The two rules of the double-entry system are that every transaction affects at least two accounts and that total debits must equal total credits. In other words, for every transaction, one or more accounts must be debited and one or more accounts must be credited.

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Note: Today most businesses, except the very smallest, use computers to handle their accounting data. Accounts are not kept in the traditional form- T- account , but are kept in what is called Running balance style-computerised accounting system Example of T- account: 1 Jason started a business on 1 April 2005. His transactions for the first month of trading were as follows. Complete the following table by stating the account to be debited and credited. Date April 1 April 2 April 10 April 24 April 25 April 27 April 30 Transaction Jason introduced capital of $40,000. This was paid into the business bank account Purchased premises, $25000, by cheque. Purchased Furniture on credit from Oak products. Paid Lynne, a creditor, $8000 by cheque Jason brought in a private motor van into the business worth $ 5,000 Received a long term loan, $10,000, by cheque from ABC Finance Received $ 2400 from Kite, a debtor, in cash Account debited Account credited

Double Entry Records for Purchases, Sales & Returns Though the same goods which are purchased for resale are later sold by the business, it is necessary to record them in separate accounts as the purchases will be at cost price and the sales at selling price. A purchases account and a sales account are used rather than a single goods account. An Inventory account is only used to record the goods left at the end of the financial year and not for day-to-day transactions.

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(a) Goods purchased by cash or cheque: Purchases Account DEBIT

Purchases:

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Double Entry Bookkeeping - T-Accounts

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CREDIT

Cash or Bank Account (depending on whether the amount was

paidin cash or by cheque)

(b)

Goods purchased on credit:

It is common for businesses to buy on credit and pay for the goods at a later date rather than at the time of purchase.

DEBIT

Purchases Account

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CREDIT sales: (a) DEBIT Goods soldfor cash or cheque: Cash or Bank Account (depending on whether the amount was Supplier Account received in cash or by cheque)

CREDIT (b)

SalesAccount

Goods sold on credit:

DEBIT

CustomerAccount

CREDIT RETURNS: (a)

Sales Account

Purchases returns or Returns outward:

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Sometimes goods which have been purchased have to be returned to the supplier. They may be faulty, damaged or not what was ordered. These goods are known as purchases returns or returns outward. DEBIT SupplierAccount CREDIT (b) Returns outwards Account Sales returns or Returns inward: Similar to purchases returns, a customer may return goods to the business. These goods are known as sales returns or returns inwards.

DEBIT

Returns inwardAccount

CREDIT

Customer Account

Double Entry Records for Incomes and Expenses Income refers to the revenue earned by the business from ordinary activities, e.g., sales of goods or services. Income differs from the money received by the business. Expenses refer to the day-to-day costs incurred in running a business, e.g., telephone, business rates and wages. Expenses are different from money paid by the business. All Income Accounts are CREDITED All Expense Accounts are DEBITED Double Entry Records for Carriages The term Carriage refers to the cost of carrying or transporting goods.

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Purchase.

Carriage inwards occurs when a business has to pay for goods it has purchased to be delivered to its premises. It is a part of the cost of purchasing goods. This is also referred as Carriage on

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Carriage outwards occurs when a business pays for goods to be delivered to the customers premises. It is a selling expense.This is also referred as Carriage on Sales.

DOUBLE ENTRY:

DEBIT CREDIT

Carriage inwards or Carriage outwards Account Cash or Bank Account

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Double Entry Records for Drawings

Whenever the owner of a business takes value from the business for his/ her own use, this is known as drawings. This value may be in the form of money, non-current assets, or goods from the stock held by the business. Drawings reduce the capital of the business. A separate account called drawings account is opened to record any value taken from the business for own use, so that the capital account does not have a large number of entries.

DOUBLE ENTRY

When money is withdrawn:

DEBIT CREDIT

Drawing Account Cash or Bank Account

When goods are withdrawn:

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DEBIT Drawing Account CREDIT Purchase Account. When a non-current asset is withdrawn: DEBIT CREDIT Drawing Account Appropriate non-currentassetAccount.

(3)Complete the following table by stating the account to be debited and credited. Transaction Owner paid for home utilities of $300 using a business cheque. Bought goods on credit from Darryl, $ 6500 Paid $3000 of rent by cheque. Sold goods on credit to Nancy, $ 5600 Paid $80 in cash for the carriage of goods purchased from Darryl Returned $500 of stock to supplier, Darryl. Account debited Account credited

a) b) c) d) e) f) g)

Received cheque of $2800 from a debtor, Nancy, in half settlement of his account. 4) Jason started a business on 1 April 2005. His transactions for the first month of trading were as follows. Complete the following table by stating the account to be debited and credited. Date April 1 April 2 April 4 April 6 April 9 April 12 April 12 April 15 April 20 April 24 Transaction Jason introduced capital of $40,000. This was paid into the business bank account Purchased premises, $25000, by cheque. Purchased goods , $9500, on credit from Lynne Cash sales, $320 Paid general expenses , $250, in cash Sold goods , $1460, on credit to Paul Account debited Account credited

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Paid $10, in cash, for carriage on sales Paul returned goods, $120 Jason took goods, $100, for his own use Paid Lynne, $8000, by cheque

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April 27 April 30

Received a long term loan, $10,000, by cheque from ABC Finance Paid assistants wages in cash, $200

Jason started a business on 1 April 2005. His transactions for the first month of trading were as follows. Complete the following table by stating the account to be debited and credited. Date April 1 April 2 April 10 April 24 April 25 Transaction Jason introduced capital of $40,000. This was paid into the business bank account Purchased premises, $25000, by cheque. Purchased Furniture on credit from Oak products. Paid Lynne, a creditor, $8000 by cheque Account debited Account credited

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Jason brought in a private motor van into the business worth $ 5,000 Received a long term loan, $10,000, by cheque from ABC Finance Received $ 2400 from Kite, a debtor, in cash April 27 April 30

1) Mona started a business on 1 January 2011. The following are her transactions for the first two weeks of trading. Jan 1 1 2 4 7 9 10 12 13 14 14 Capital, $20000, was paid into a business bank account Paid rent, $500, by cheque. Bought goods, $3300,on credit from Mohamed Returned goods, $100, to Mohamed Sold goods, $1700, on credit to Aswan Traders Received $120 commission in cash Paid Mohamed$3000 by cheque on account. Aswan Traders paid $1000 by cheque. Paid sundry expenses in cash $20. Cash sales, $1500

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Cash withdrawn for personal use, $500 1) Mona started a business on 1 January 2011. The following are her transactions for the first two weeks of trading. Jan 1 1 2 4 7 9 10 12 13 14 14 Capital, $20000, was paid into a business bank account Paid rent, $500, by cheque. Bought goods, $3300, on credit from Mohamed Returned goods, $100, to Mohamed Sold goods, $1700, on credit to Aswan Traders Received $120 commission in cash Paid Mohamed $3000 by cheque on account. Aswan Traders paid $1000 by cheque. Paid sundry expenses in cash $20. Cash sales, $1500 Cash withdrawn for personal use, $500

This is the end of double entry accounting. Now you must be familiar with double entry bookkeeping.Please proceed to the next topic form the navigation bar. Incoming search terms: carriage outwards double entry carriage inwards double entry what are the accounting entries carriage inwards

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