Unit 3 - Double Entry

(Mobile Users, please click HERE to download pdf version)

When it come to keeping track of financial transactions, there are two main systems that bookkeepers may use:

Single Entry:
This system is often used by small businesses and uses only the income and expense accounts. Each transaction is recorded within the revenue and expense journal.

Double-Entry:
This system is mostly used by medium to large businesses and it's more complicated than the single entry system. Bookkeepers are required to divide a single transaction into two equal parts (credit and debit), then record each part into two separate books (Hence the word double-entry). Separating each part in different ledgers allows the bookkeeper, in theory, to re-trace errors from one end, by referencing the other.

This is the double entry system works:

Diagram 1

Diagram 2

EXAMPLES

Brenda owns a flower shop.

She sells $100 worth of flowers to a customer, who immediately pays in cash.

What is the double entry for this transaction?

STEP 1.

Let's examine how the above transaction affects Brenda's business.

1. Flowers were sold. This would decrease her stock of flowers.

2. She received a cash payment. This would increase the cash she has in hand.

STEP 2.

From the above transaction, we can conclude that Brenda's stock of flowers have decreased, while the amount of cash in the business has increased.

STEP 3.

Stock (flowers for sale) and Cash are considered Assets. Based upon diagram 2:

An increase in Assets means a Debit Entry.

A decrease in Assets means a Credit Entry.

STEP 4.

A decrease in Stock = Credit Entry

An increase in Cash = Debit Entry

OUR DOUBLE ENTRY WOULD LOOK LIKE THIS:

EXAMPLE 2

Brenda pays $1000 into the business and this was deposited in the company's bank account.

- Money paid into a business is called Capital.

- This transaction increases the company's Capital, as well as the amount in the company's Bank Account.

- The company's Bank Account is an Asset.

From diagram 2, we see that:

An increase in Capital means a Credit Entry.

An increase in Assets means a Debit Entry.

OUR DOUBLE ENTRY WOULD LOOK LIKE:

:

EXAMPLE:

Brenda buys $300 worth of flowers from her suppliers on credit.

- Brenda's purchase represents new stock. It increases the amount of Stock in the business.

- By buying on credit, she has increased the amount of money owed to her creditors.

- Stock is considered an Asset.

- Creditors are considered a Liability.

Based upon diagram 2,

- An increase in Assets means a Debit Entry.

- An increase in Liability means a Credit Entry.

OUR DOUBLE ENTRY WOULD LOOK LIKE:

Assignment

Janice owns a boutique. She has asked you, as a bookkeeper, to prepare her books for the month of May.

Using the transaction below, prepare the double entry accounts.

1. Paid $700 in salaries to workers.

2. $3,000 capital injection by Janice.

3. $4,000 used to purchase mannequins for the boutique.

Students have the option of doing the assignment on Word/Excel or on a page (you can take a photo of the assignment). If you are submitting a picture file, please ensure that the assignment is clear and not blurry.

Email your answers to actira.tt@gmail.com.

If you are having difficulties, send us a message on Facebook or an email at actira.tt@gmail.com