CHAPTER 3: DOUBLE ENTRY BOOKKEEPING

We have seen in chapter 2 that every transaction affects two items (accounts). We need to show
these effects when we first record each transaction. This is the bookkeeping stage of accounting and
the process we use is called double entry.

Each account should be shown on a separate page in the accounting books. The double entry system
divides each page into two halves. The left- hand side of the page is called the debit side, while the
right-hand side is called the credit side.

- According to dual concept it states that for every debit entry, there must be a credit entry.
- Double entry bookkeeping is done in a book called ledger which is debited on the left side
and credited on the right side.
- Accounts recorded in the ledger are referred to as T accounts because they look like the
shape of capital T.

PRINCIPLES FOLLOWED WHEN RECORDING ACCOUNTS IN DOUBLE – ENTRY (IN A LEDGER)

- Every transaction affects two items and son two accounts should be opened.
- When there is one debit entry, there should be one credit entry.
- The total debit must be equal to the total credit.
- The details of one account refer to the name or title of the corresponding account.

RULES OF DOUBLE ENTRY

- TO increase an asset, debit the asset account

- To decrease an asset, credit the asset account
- To increase a liability, credit the liability account
- To decrease a liability, debit the liability account
- To increase capital, credit the capital account
- To decrease capital, debit the capital account

A debit entry is always for assets or an expense while a credit entry is for capital, liability and
income

1. When goods are bought they are recorded into an account known as purchases account
which is debited.
2. When goods are sold they are recorded into an account known as sales account which is
credited.
3. When payment is received by cheque this is recorded in the bank account which is debited,
if payment is made by cash it is recorded in the cash account which is debited.
4. Goods returned to the business are recorded in the returns inwards/sales returns account
which should be debited.

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5. Goods returned by the business are recorded in the returns outwards/purchases account,
which is credited.
6. Expenses are recorded in the expenses account which could be specific e.g. rent account or
in a general /sundry expenses account. This is debited.
7. Revenue is recorded in the credit side pending periodical calculation of profit in the profit
and loss account.
8. Drawings are recorded in the drawings account and it is debited.

A simplified T account

Title of Account

Examples of double entry transactions

- On January 1, 2005 John started business by putting P50, 000 into the business bank
account.
- On 8 January, 2005, John bought goods for sale for P1000 paying by cheque.
- On 10th January, 2005, john bough a motor van on credit from Altas Motor Centre for
business use P30, 000
- On the 10th February the business pays Atlas motor centre P5000 by cheque.

The word debit (Dr) and Credit (Cr) in bookkeeping do not mean the same as in normal
language and students should note this to avoid confusion.
Remember money gets IN debit entry and get OUT in credit entry.
Assets are debited while liabilities and capital are credited.

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CASHBOOK

The Cash book consists of the cash account and the bank account put together into one book. By
having a cash book we can record all money received and paid out on a particular date on the same
page. In the cash book, the debit column for cash is put next to the debit column for the bank. The
credit column for cash is put next to the column for bank. The bank column contains details of the
payments made by cheque and direct transfer from the bank account and of the money & cheques
received and paid into the bank. The bank will have a copy of the account in its own books.

On a regular basis, the bank sends a copy of the account in its own books to the business, i.e. the
bank statements.

Cash paid into the bank

1. When customers pay their account in cash and the money is then paid into the bank. The receipt
of the cash is debited to the cash column on the date received, the credit entry being in the
customer’s personal account. The cash banked has the following effect:

EFFECTS ACTION
1. Assets of cash is Credit the assets account i.e. the cash account which is represented
decreased by the cash column in the cash book.
2. Assets of bank is Debit the asset account i.e. the bank account which is represented
increased by the bank column in the cash book.

e.g.

A cash receipt P200 from Motsa on 1st of August 2007 which was followed by the banking on the 3rd
August 2007 of P180 of this amount would appear in the cash book as follows:

CASH BOOK

DETAILS CASH BANK DATE DETAILA CASH BANK

2007 P P 2007 P P
Aug 1 Motsa 200 Aug 3 Bank 180
Aug 3 Cash 180

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2. When all the cash received is banked immediately, the receipt can be treated in exactly the same
manner as a cheque received i.e. it can be entered directly into the bank column.

CASH BOOK

DETAILS CASH BANK DATE DETAILS CASH BANK

2007 P P P P
Aug 1 Motsa 200

When the credit and debit entries for an item are in the same book, this is referred to as a contra
Item.

3. If the business requires cash, it may withdraw cash from the bank by using a cheque

EFFECTS ACTION
1. Assets of bank is Credit the asset account i.e. the bank account which is represented
decreased by the bank column in the cash book.
2. Assets of cash is Debit the asset account i.e. the cash account which is represented
increased by the cash column in the cash book.

E.g.

A withdrawal of P100 on 1st of July 2007 from the bank would appear in the cash book as Follows:

DATE DETAILS CASH BANK DATE DETAILS CASH BANK

2007 P P 2007 P P
July1 Bank 100 July 1 100

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Class Exercise

Record the following transactions in the cash book and show the closing balances as at 30 th
September 2007:

2007

1 Sep business owner deposited P10 000 into the bank account and withdrew P2000 to use as
business cash float.

2 Sep received cash from T.Moore P33

3 Sep paid a creditor,wp ltd by cheque P244

5 Sep received cash from a customer K. Charles P25

7 Sep paid rent by cheque P205

8 Sep paid for postage stamps using cash P20

12 Sep paid creditors C.pots P19 cash, and F Smalls ltd by cheque P95

15 Sep a debtor F.hughes paid P37 cash

16 Sep received a cheque of P408 from K.Noone

26 Sep paid K.French P268 by cheque

28 Sep bought office stationery for cash P25

29 Sep debtors H.Sanders and G. Marang paid P20 by cheque and P18 cash respectively

CASH ACCOUNT

Date Details Pula Date Details Pula

2007 2007
01 Sep Bank 2 000 08 – sep Post stamps 20
02 – sep T. Moore 33 12 – sep C.Potts 19
05 – sep K. Charles 25 28 – sep Office Stat 25
15 – sep H. Hughes 37 30 – sep balance c/d 2049
29 - sep G .Marang 18
2113 2113

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BANK ACCOUNT

Date Details Pula Date Details Pula

2007 2007
01 Sep Capital 10 000 01 sep Cash 2000
16 Sep K.Noone 408 03 sep WP ltd 244
29 sep H.Sanders 20 07 sep Rent 205
12 sep F small ltd 95
26 sep k. French 268
30 sep balance C/d 7616
10428 10428

CASHBOOK

Date Details Cash Bank Date Details Cash Bank

2007 Pula Pula 2007 Pula Pula
01 sep Capital 10000 01 sep Cash 2000
01 sep Bank 2000 03 sep Wp ltd 244
02 sep T.Moore 33 07 sep Rent 205
05 sep K.Charles 25 08 sep Postage 20
15 sep F.Hughes 37 12 sep c.potts 19
16 sep K.Noone 408 12 sep F Small 95
29 sep H.Sanders 20 26 sep K.French 268
30 sep G. Marang 18 28 sep Office St 25
30 sep Bala c/d 2049 7616
2113 10428 2113 10428