Double Entry Bookkeeping - T-Accounts
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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Double Entry Bookkeeping what is double entry bookkeeping? (double entry accounting) The basis of accounting system is the double entry bookkeeping system. This involves making two entries in the accounts for each transaction. These accounts are kept in ledgers. T- account: T-Accounts are the basic storage units for accounting data and are used to accumulate amounts from similar transactions. An accounting system has a separate account for each asset, each liability, and owner’s equity. A T-account is divided into two sides by the center line. The left-hand side is the DEBIT side (usually abbreviated to Dr.) and the right-hand side is the credit side (usually abbreviated to Cr.) On each side there are columns in which to record the date, details and amounts of each transaction. Because of the dual nature of every transaction, two entries are made –a debit in one account and a credit in another account. Double Entry Rule: The two rules of the double-entry system are that every transaction affects at least two accounts and that total debits must equal total credits. In other words, for every transaction, one or more accounts must be debited and one or more accounts must be credited.
/ http://www.principlesofaccounting2.com/ Note: Today most businesses, except the very smallest, use computers to handle their accounting data. Accounts are not kept in the traditional form- T- account , but are kept in what is called “Running – balance style-computerised accounting system Example of T- account: 1 Jason started a business on 1 April 2005. His transactions for the first month of trading were as follows. Complete the following table by stating the account to be debited and credited. Date April 1
Transaction Jason introduced capital of $40,000. This was paid into the business bank account
April 2 April 10
Purchased premises, $25000, by cheque. Purchased Furniture on credit from Oak products.
April 24
Paid Lynne, a creditor, $8000 by cheque Jason brought in a private motor van into the business
April 25 April 27 April 30
Account debited
Account credited
worth $ 5,000 Received a long term loan, $10,000, by cheque from ABC Finance Received $ 2400 from Kite, a debtor, in cash
Double Entry Records for Purchases, Sales & Returns Though the same goods which are purchased for resale are later sold by the business, it is necessary to record them in separate accounts as the purchases will be at cost price and the sales at selling price. A purchases account and a sales account are used rather than a single goods account. An Inventory account is only used to record the goods left at the end of the financial year and not for day-to-day transactions. Purchases:
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (a)
DEBIT
Goods purchased by cash or cheque: Purchases Account
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Double Entry Bookkeeping - T-Accounts
CREDIT
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Cash or Bank Account (depending on whether the amount was
paidin cash or by cheque)
(b)
Goods purchased on credit:
It is common for businesses to buy on credit and pay for the goods at a later date rather than at the time of purchase.
DEBIT
Purchases Account
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ CREDIT
Supplier Account
sales: (a)
Goods soldfor cash or cheque:
DEBIT
Cash or Bank Account (depending on whether the amount was
received in cash or by cheque)
CREDIT (b)
SalesAccount
Goods sold on credit:
DEBIT
CustomerAccount
CREDIT
Sales Account
RETURNS: (a)
Purchases returns or Returns outward:
/ http://www.principlesofaccounting2.com/ Sometimes goods which have been purchased have to be returned to the supplier. They may be faulty, damaged or not what was ordered. These goods are known as purchases returns or returns outward. DEBIT
SupplierAccount
CREDIT (b)
Returns outwards Account
Sales returns or Returns inward:
Similar to purchases returns, a customer may return goods to the business. These goods are known as sales returns or returns inwards.
DEBIT
Returns inwardAccount
CREDIT
Customer Account
Double Entry Records for Incomes and Expenses
Income refers to the revenue earned by the business from ordinary activities, e.g., sales of goods or services. Income differs from the money received by the business.
Expenses refer to the day-to-day costs incurred in running a business, e.g., telephone, business rates and wages. Expenses are different from money paid by the business. All Income Accounts are CREDITED All Expense Accounts are DEBITED
Double Entry Records for Carriages
The term Carriage refers to the cost of carrying or transporting goods.
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Carriage inwards occurs when a business has to pay for goods it has purchased to be delivered to its premises. It is a part of the cost of purchasing goods. This is also referred as Carriage on Purchase.
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Double Entry Bookkeeping - T-Accounts
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Carriage outwards occurs when a business pays for goods to be delivered to the customer’s premises. It is a selling expense.This is also referred as Carriage on Sales.
DOUBLE ENTRY:
DEBIT
Carriage inwards or Carriage outwards Account
CREDIT
Cash or Bank Account
Double Entry Records for Drawings
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Whenever the owner of a business takes value from the business for his/ her own use, this is known as drawings. This value may be in the form of money, non-current assets, or goods from the stock held by the business. Drawings reduce the capital of the business. A separate account called drawings account is opened to record any value taken from the business for own use, so that the capital account does not have a large number of entries.
DOUBLE ENTRY
When money is withdrawn:
DEBIT
Drawing Account
CREDIT
Cash or Bank Account
When goods are withdrawn:
/ http://www.principlesofaccounting2.com/ DEBIT
Drawing Account
CREDIT
Purchase Account.
When a non-current asset is withdrawn:
DEBIT
Drawing Account
CREDIT
Appropriate non-currentassetAccount.
(3)Complete the following table by stating the account to be debited and credited. Transaction Owner paid for home utilities of $300 using a business cheque.
a) b) c)
Bought goods on credit from Darryl, $ 6500 Paid $3000 of rent by cheque.
d)
Sold goods on credit to Nancy, $ 5600 Paid $80 in cash for the carriage of goods purchased from
e) f)
Account debited
Account credited
Darryl Returned $500 of stock to supplier, Darryl.
Received cheque of $2800 from a debtor, Nancy, in half settlement of his account. 4) Jason started a business on 1 April 2005. His transactions for the first month of trading were as follows. Complete the following table by stating the account to be debited and credited. g)
Date April 1
Transaction Jason introduced capital of $40,000. This was paid into
April 2
the business bank account Purchased premises, $25000, by cheque.
April 4 April 6
Purchased goods , $9500, on credit from Lynne Cash sales, $320
April 9 April 12
Paid general expenses , $250, in cash Sold goods , $1460, on credit to Paul
April 12 April 15
Paid $10, in cash, for carriage on sales Paul returned goods, $120
April 20 April 24
Jason took goods, $100, for his own use Paid Lynne, $8000, by cheque
Account debited
Account credited
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Double Entry Bookkeeping - T-Accounts
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April 27
Received a long term loan, $10,000, by cheque from ABC Finance
April 30
Paid assistant’s wages in cash, $200
Jason started a business on 1 April 2005. His transactions for the first month of trading were as follows. Complete the following table by stating the account to be debited and credited. Date
Transaction Jason introduced capital of $40,000. This was paid into
April 1 April 2
the business bank account Purchased premises, $25000, by cheque.
April 10 April 24
Purchased Furniture on credit from Oak products. Paid Lynne, a creditor, $8000 by cheque
April 25
Jason brought in a private motor van into the business worth $ 5,000
April 27
Received a long term loan, $10,000, by cheque from ABC Finance
April 30
Received $ 2400 from Kite, a debtor, in cash
Account debited
Account credited
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1) Mona started a business on 1 January 2011. The following are her transactions for the first two weeks of trading. Jan 1
Capital, $20000, was paid into a business bank account
1
Paid rent, $500, by cheque.
2
Bought goods, $3300,on credit from Mohamed
4
Returned goods, $100, to Mohamed
7
Sold goods, $1700, on credit to Aswan Traders
9
Received $120 commission in cash
10
Paid Mohamed$3000 by cheque on account.
12
Aswan Traders paid $1000 by cheque.
13
Paid sundry expenses in cash $20.
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Cash sales, $1500
14
Cash withdrawn for personal use, $500
1) Mona started a business on 1 January 2011. The following are her transactions for the first two weeks of trading. Jan 1
Capital, $20000, was paid into a business bank account
1
Paid rent, $500, by cheque.
2
Bought goods, $3300, on credit from Mohamed
4
Returned goods, $100, to Mohamed
7
Sold goods, $1700, on credit to Aswan Traders
9
Received $120 commission in cash
10
Paid Mohamed $3000 by cheque on account.
12
Aswan Traders paid $1000 by cheque.
13
Paid sundry expenses in cash $20.
14 14
Cash sales, $1500 Cash withdrawn for personal use, $500
This is the end of double entry accounting. Now you must be familiar with double entry bookkeeping.Please proceed to the next topic form the navigation bar. Incoming search terms:
carriage outwards double entry
carriage inwards double entry what are the accounting entries carriage inwards
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