Chapter 2
The Double Entry System for
Assets, Liabilities and Capital
Objectives
Explain what is meant by ‘double entry’
Explain how the double entry system follows the
rules of the Accounting equation
Explain why each transaction is recorded into
individual accounts
Describe the layout of a ‘T-account’
Objectives
Explain what is meant by the terms debit & credit
Explain the phrase ‘debit the receiver & credit the
giver’
Prepare a table showing how to record increase and
decreases of assets, liabilities and capital in the
accounts
Enter a series of transactions into T-accounts
Nature of Transactions
You saw how various events had changed 2 items
in the B/S
Events which result in such changes are known as
transactions
If the proprietor asks the price of some goods, and
Does not buy them – there is no transaction!
Buys them – there is a transaction! – 2 B/S items will have
to be altered..
The Double Entry System
Every transaction affects 2 items
We need to show these effects when we 1st record each
transaction – only those items are shown as having
changed
This process is called – double entry OR double entry
bookkeeping – each entry is made twice!
The double effect shows the effect of each transaction on
each of the 2 items it affects
1st entry – decrease / increase in an item
2nd entry – decrease / increase in an item
The Double Entry System
The transactions that occur are entered in a set of
accounts
An account – a place where all the info referring to a
particular asset / liability / capital is recorded
Ex – an account where all info concerning off
equipment will be entered
The Accounts for Double Entry
Each acc should be shown on a separate page in the accounting
books
Double entry sys divides each page into 2 halves
Title of account written here
Left-hand side of the page – Right-hand side of the page –
This is the ‘debit’ side This is the ‘credit’ side
Do you see how the shape resembles a ‘T’? These are commonly
referred to T-accounts
The Accounts for Double Entry
Ex – You paid $100 by cheque for a table:
Debit the table acc with $100
Credit the bank acc with $100
To make an entry:
Table account Bank account
$ $
100 100
The Accounts for Double Entry
Transactions increase / decrease assets, liabilities or capital
Accounts To record Entry in the acc
Assets An increase Debit
A decrease Credit
Liabilities An increase Credit
A decrease Debit
Capital An increase Credit
A decrease Debit
The Accounts for Double Entry
Let’s look at the accounting equation:
Capital = Assets - Liabilities
To increase each item Credit Debit Credit
To decrease each item Debit Credit Debit
The Accounts for Double Entry
Let’s look at the accounts:
Capital account Any Asset account
Decreases Increases Increases Decreases
- + + -
Any Liability account
Decreases Increases
- +
Worked Examples
Let’s
look at some examples..
Example 1
Let’s try Review Questions 2.1, Page 26
A Further Worked Example
Let’s look at Example 2
Abbreviation of ‘limited’
Limited companies use the abbreviation ‘Ltd’
Some limited companies use ‘plc’ which is
‘public limited company’ instead of Ltd
Tutorials..
Review Questions: 2.2A, 2.5A, 2.6A
Answers will be discussed in the next class
Please attempt other questions as well..
It is for your own benefit..
You will be given a Quiz on this chapter in the next
class, kindly revise.. TQ =)
