Double Entry Book Keeping PDF

Accounting Year
Financial Accounting
Scenario involves a company ABC Ltd.
Double Entry Bookkeeping
(The company sells clothing items)
12 months, but not necessarily coinciding with calendar

year.
Define a period for which accounting books are maintained
and summarized for yearly financial statements.
SmartClasses.com 2007
Student Notes for Financial Accounting
Financial Statements
Trading and Profit &

Loss Account
Summary of Income
(Sales plus any other
income) and
Expenses
Highlight Profit or
Loss generated for an
accounting period
Balance Sheet
Scenario involves ABC LTD.

A company is into clothing business
Assets: Owned by ABC

Fixed Assets
Material things owned
by ABC Ltd. that gives
it benefit in a period
exceeding one
accounting period
A snapshot of the
Assets, Liabilities and
Capital
Confirm to Accounting
equation:
Current Assets
Cash
Stock or inventory
Debtors: Businesses
that owe money to
ABC Ltd.
Accounting Equation
Liabilities: Owed by ABC

Long-term liabilities
Loans taken by ABC
Ltd. that are repayable
in more than one
accounting period
Short-term liabilities
Overdraft
Accruals: Unpaid bills
Creditors: Businesses
to whom ABC Ltd.
owes money
Assets = Liabilities + Capital

Duality Concept in recording

accounting transactions
Monetary transaction in day to day

business at ABC Ltd. would involve:

Buying of assets for cash or credit

Selling of assets for cash or credit
Creates a two-sides to a transaction in

any of the four combinations:
Assets increase
Cash decreases
Assets decrease
Cash increases
Assets increase
Creditors increase
Assets decrease
Debtors increase
Recording of a transaction

Recorded in ledgers that are accounts

created for each of the asset, liability,
income and expense
A ledger has two sides for accounting entry
Each transaction will either impact its Debit
Side or its Credit Side
Left Side
Right Side
Debit Side
(expressed as Dr)
Credit Side
(expressed as Cr)
A typical ledger format
Impact on ledger
Name of the account
Dr
Cr
For example: Cash; Plant & Machinery; Sales
Date
Details
Date
Details
Debit side is
impacted when
increase in:
Credit side is
impacted when
increase in:

Assets
Expenses
Drawings (money
Liability
Income
Capital (money

withdrawn by owner
from the business for
personal reasons. The
action decreases
Capital)
Recording a cash transaction

TRANSACTION ONE: On 1 Jan 2008: ABC Ltd. was incorporated with investment
of 50000.00 from its owner. Money deposited into company bank account.
Account Ledger impacted: Bank Account of ABC Ltd.
Dr
01-01-08
50000.00
Capital
Increase in cash (current assets)

hence debit entry
Account Ledger impacted: Capital Account of Owner
Dr
Cr
01-01-08
50000.00
Bank

TRANSACTION THREE: On 5 Jan 2008: ABC Ltd. purchased stationery items
by paying cheque of 250.00 to their supplier.
Account Ledger impacted: Bank Account
Dr
Cr
05-01-08
250.00
Stationery
05-01-08
Office Stationery Account

Bank
250.00
TRANSACTION TWO: On 1 Jan 2008: ABC Ltd. purchased computers

by paying cheque of 4750.00
Dr
Bank Account
Cr
01-01-08
4750.00
Decrease in cash (current assets)

hence credit entry
Computers
Dr
01-01-08
Cr
Computer Account
Bank
4750.00
Increase in fixed assets hence debit entry

TRANSACTION FOUR: On 6 Jan 2008: ABC Ltd. sold clothing items
And received cash of 2500.00
Dr
Bank Account
06-01-08
2500.00
Sales
Cr
Increase in cash (current assets)
hence debit entry
Account Ledger impacted: Sales Account
Account Ledger impacted: Office Stationery Account
Dr
Bank Account
Decrease in cash (current assets)

hence credit entry
Account Ledger impacted: Computer Account
Capital Account
Increase in capital hence credit entry
Cr
Bank Account
invested by the owners

into the business at the
start or during the
course of business)
Cr
Increase in expenses hence debit entry
Dr
Sales Account
Cr
06-01-08
2500.00
Increase in income (sales) hence credit entry
Bank
Recording a credit transaction

TRANSACTION FIVE: On 10 Jan 2008: ABC Ltd. purchased fabric (raw material)
worth 4500.00 from its regular supplier Joe Ltd. Payment to be made in 60 days.
Account Ledger impacted: Purchases Account
Dr
10-01-08
Joe Ltd.
Increase in stock (current assets)

hence debit entry
Account Ledger impacted: Joe Ltd. Account
Dr
10-01-08
Dr
Purchases
4500.00
Balancing the ledger accounts

END OF MONTH: All ledgers are balanced by making the Debit and the Credit
sides EQUAL in the particular ledger account on last day of the month.
Dr
01-01-08
Capital
06-01-08
Sales
Total
01-02-08
Balance b/f
47,500.00
12-01-08
Malcolm Ltd.
Computers
Stationery
Balance c/f
Total
Malcolm Ltd. Account

Sales
12-01-08
1750.00
Cr
Increase in debtors (current assets)

hence debit entry
Balances The Importance

Cr
Bank Account
50,000.00 01-01-08
05-01-08
2,500.00 31-01-08
52,500.00
Cr
1750.00
Increase in income hence credit entry
Balancing the Bank Account ledger
Dr
Sales Account
Account Ledger impacted: Malcolm Ltd. Account
Cr
Joe Ltd. Account
Increase in creditors (current liabilities)

hence credit entry
TRANSACTION SIX: On 12 Jan 2008: ABC Ltd. sold clothing items

worth 1750.00 to their regular client Malcolm Ltd. Payment due in 30 days.
Account Ledger impacted: Sales Account
Cr
Purchases Account
4500.00
Recording a credit transaction
4,750.00
250.00
47,500.00
52,500.00
Balance c/f
Is an asset or a
liability at the END
of the accounting
period.
Balance b/f
Is an asset or a
liability at the
beginning of the
NEXT accounting
period.
Balance carried forward (c/f) is the amount that makes the smaller side
(debit OR credit) equal to the larger side.
Balance brought forward (b/f) is the starting balance on the first day
of the new month.
Opening Balances
Asset account
Will always have a
DEBIT entry
Expense account
Will always have a
DEBIT entry
Other accounts & transactions
Liability account
Will always have a
CREDIT entry
Income account
Will always have a
CREDIT entry
Debit Side

Sales returns inwards (loss)

Discounts allowed
Carriage Inwards
Overheads
(expenses paid such
as salaries; utilities;
advertising, carriage
outwards)
Debtors
Credit Side

Purchases returned
outwards (gain)
Discounts received
VAT (Unpaid tax received
as component of Gross
Selling Price)
Sales (cash or credit)
Creditors

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Accounting Year

Scenario involves a company ABC Ltd.

Double Entry Bookkeeping

(The company sells clothing items)

12 months, but not necessarily coinciding with calendar

Student Notes for Financial Accounting

Trading and Profit &

Scenario involves ABC LTD.

Assets: Owned by ABC

Student Notes for Financial Accounting

Liabilities: Owed by ABC

Assets = Liabilities + Capital

Student Notes for Financial Accounting

Duality Concept in recording

Monetary transaction in day to day

Buying of assets for cash or credit

Creates a two-sides to a transaction in

Student Notes for Financial Accounting

Student Notes for Financial Accounting

Recorded in ledgers that are accounts

A typical ledger format

Name of the account

For example: Cash; Plant & Machinery; Sales

Student Notes for Financial Accounting

Recording a cash transaction

Increase in cash (current assets)

Account Ledger impacted: Capital Account of Owner

Student Notes for Financial Accounting

Recording a cash transaction

Office Stationery Account

TRANSACTION TWO: On 1 Jan 2008: ABC Ltd. purchased computers

Decrease in cash (current assets)

Increase in fixed assets hence debit entry

Student Notes for Financial Accounting

Recording a cash transaction

Account Ledger impacted: Sales Account

Account Ledger impacted: Office Stationery Account

Recording a cash transaction

Account Ledger impacted: Bank Account

Decrease in cash (current assets)

Student Notes for Financial Accounting

Account Ledger impacted: Computer Account

Increase in capital hence credit entry

Account Ledger impacted: Bank Account

invested by the owners

Increase in expenses hence debit entry

Student Notes for Financial Accounting

Increase in income (sales) hence credit entry

Student Notes for Financial Accounting

Recording a credit transaction

Increase in stock (current assets)

Account Ledger impacted: Joe Ltd. Account

Student Notes for Financial Accounting

Balancing the ledger accounts

Malcolm Ltd. Account

Increase in debtors (current assets)

Student Notes for Financial Accounting

Balances The Importance

Increase in income hence credit entry

Balancing the Bank Account ledger

Account Ledger impacted: Malcolm Ltd. Account

Joe Ltd. Account

Increase in creditors (current liabilities)