DOUBLE ENTRY BOOK KEEPING

DOUBLE ENTRY BOOK KEEPING

          Double entry book keeping is the system of keeping account, which take advantages of the two-fold aspect of every transaction, whereby one account that receives is debited and another account which gives is credited.

PRINCIPLE OF DOUBLE ENTRY

          The principle of double entry states that for every debited entry, there must be acorresponding  credit entry and for every credit entry, there must be a corresponding debit entry.

          Hence, every transaction (whether cash or credit must be recorded two times. First, it must be recorded on the debit side (left side) of one account, and then on the credit side (right side) of another account

GOLDEN RULE

1.       Debit the receiver with value it receives

2.       Credit the giver with value it gives out

The following questions should be asked when you have to record a transaction:

1.       Which two accounts are involved?

2.       Which account is giving value?

3.       Which account is receiving value?

          Then, go ahead and debit the account which is receiving money or money’s worth, and credit the account which is giving money or money’s worth

Examples

Nov 1:        Started business with N200 in the bank.

The two accounts are Capital account and Bank account

Action:       Capital A/C is giving out and will be credited (Giving A/C).

                    Bank A/C is receiving and will be debited (Receiving A/c)

Nov 3:        Cash purchases   N600

The two accounts are Cash Account and Purchases Account

Action:       Cash A/c is giving out and will be credited (Giver)

                   Purchases A/c is receiving and must be debited (Receiver)

Nov 4:          Sold goods on credit to Mayowa

Two accounts are Sales Account and Mayowa’s Account

Action:       Sales A/c is giving and will be credited (Giver)

          Mayowa’s A/c is receiving and should be debited (Receiver)

Nov  8:       Bought furniture for cash  N100

The two accounts are Cash Account and Furniture Account

Action:       Furniture Account is receiving and will be debited (Receiver)

                    Cash Account is giving out and should be credited (Giver)

Nov 15.  Goods returned to us by YemiN70

The two accounts are Return inwards account and Yemi’s Account

Action:       Yemi is giving out and his Account will be credited   (Giver)

                   Return inward Account is receiving and account debited  (Receiver)

Nov 20.      Goods bought by cheque N 300

The two Accounts are Purchases Account and Bank Account

Action:       Purchases Account is receiving and be debited (Receiver)

          Bank Account is giving out and will be credited (Giver)

                                      Home work

Complete the table below

                                                                             Account to Account to be

                                                                             be debited  be credited

a. Started business with N800 cash

b. Goods bought by cheque

c. Goods sold on credit to Mr. Ayo

d. Sold goods for cash

e. Bought a motor van by cheque

f. Goods returned to Olotu

g. Took N20 of the cash and paid into the bank