The Double Entry System of Book-Keeping (Copy)
THE DOUBLE ENTRY SYSTEM OF BOOK-KEEPING — COMPLETE O LEVEL & IGCSE ACCOUNTING GUIDE
BASIC PRINCIPLE OF DOUBLE ENTRY
| Concept | Detailed Explanation | Common Mistakes | Examiner Expectations |
|---|---|---|---|
| Double Entry Principle | Every transaction affects at least two accounts. One account is debited and another is credited. | Writing only one side of entry. | Must mention debit and credit. |
| Debit Entry | Left-hand side of an account. | Thinking debit always means increase. | Depends on account type. |
| Credit Entry | Right-hand side of an account. | Thinking credit always means decrease. | Depends on account type. |
| Dual Aspect Concept | Every transaction has two equal effects. | Forgetting equality. | Both entries must balance. |
| Ledger Account | Account used to record transactions classified under headings. | Mixing ledger with journal. | Must know T-account format. |
RULES OF DOUBLE ENTRY
| Account Type | Increase | Decrease | Common Error |
|---|---|---|---|
| Assets | Debit | Credit | Crediting asset increases |
| Liabilities | Credit | Debit | Debiting liabilities for increase |
| Capital | Credit | Debit | Treating like asset |
| Income | Credit | Debit | Debiting sales |
| Expenses | Debit | Credit | Crediting expenses |
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
COMPLETE DOUBLE ENTRY TABLE
| Transaction | Debit Entry | Credit Entry |
|---|---|---|
| Started business with cash | Cash account | Capital account |
| Started business with bank | Bank account | Capital account |
| Bought goods for cash | Purchases account | Cash account |
| Bought goods on credit | Purchases account | Trade payable account |
| Sold goods for cash | Cash account | Sales account |
| Sold goods on credit | Trade receivable account | Sales account |
| Returned goods to supplier | Trade payable account | Purchases returns account |
| Goods returned by customer | Sales returns account | Trade receivable account |
| Paid rent by cash | Rent expense account | Cash account |
| Paid wages by cheque | Wages account | Bank account |
| Received commission income | Cash/Bank account | Commission income account |
| Received cash from trade receivable | Cash account | Trade receivable account |
| Paid cash to trade payable | Trade payable account | Cash account |
| Discount allowed to customer | Discount allowed account | Trade receivable account |
| Discount received from supplier | Trade payable account | Discount received account |
| Bought equipment for cash | Equipment account | Cash account |
| Bought motor vehicle by cheque | Motor vehicle account | Bank account |
| Received bank loan | Bank account | Loan account |
| Paid loan instalment | Loan account | Bank account |
| Owner withdrew cash | Drawings account | Cash account |
| Owner withdrew goods | Drawings account | Purchases account |
| Paid insurance by bank | Insurance expense account | Bank account |
| Received rent income | Cash/Bank account | Rent income account |
| Paid electricity expense | Electricity account | Cash/Bank account |
| Depreciation charged | Depreciation expense account | Provision for depreciation account |
| Bad debts written off | Bad debts account | Trade receivables account |
T-ACCOUNT FORMAT
| Debit (Dr) | Account Name | Credit (Cr) |
|---|---|---|
| Date | Details | Amount |
BASIC LEDGER FORMAT
| Date | Details | Debit ($) | Credit ($) |
|---|---|---|---|
| 1 Jan | Capital | 10 000 | — |
| 5 Jan | Purchases | — | 2000 |
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
TYPES OF ACCOUNTS
| Type of Account | Examples | Nature |
|---|---|---|
| Asset Accounts | Cash, bank, equipment | Usually debit balances |
| Liability Accounts | Loan, trade payables | Usually credit balances |
| Capital Accounts | Capital, drawings | Capital normally credit |
| Income Accounts | Sales, rent income | Credit balances |
| Expense Accounts | Rent, wages, insurance | Debit balances |
COMMONLY TESTED DOUBLE ENTRIES
| Transaction | Correct Entry | Common Trap |
|---|---|---|
| Credit purchase of inventory | Dr Purchases Cr Trade Payables | Crediting purchases |
| Cash sale of inventory | Dr Cash Cr Sales | Debiting sales |
| Return to supplier | Dr Trade Payables Cr Purchases Returns | Using sales returns |
| Customer returns goods | Dr Sales Returns Cr Trade Receivables | Wrong return account |
| Depreciation | Dr Depreciation Expense Cr Provision for Depreciation | Crediting asset directly when provision account used |
| Dishonoured cheque | Dr Trade Receivable Cr Bank | Forgetting reversal |
| Bad debt recovered | Dr Cash Cr Bad Debts Recovered | Crediting receivables |
SOURCE DOCUMENTS RELATED TO DOUBLE ENTRY
| Source Document | Purpose | Transactions Related |
|---|---|---|
| Invoice | Credit sales/purchases | Sales and purchases |
| Receipt | Cash received | Cash transactions |
| Cheque Counterfoil | Cash paid by cheque | Bank payments |
| Debit Note | Purchase returns | Returns outward |
| Credit Note | Sales returns | Returns inward |
COMMON EXAM MISTAKES
| Mistake | Why It Loses Marks |
|---|---|
| Reversing debit and credit | Entire entry becomes wrong |
| Using wrong account title | No mark for account name |
| Forgetting one side of entry | Double entry incomplete |
| Confusing returns inward/outward | Very common examiner comment |
| Treating drawings as expense | Drawings affect capital directly |
| Entering asset purchase in purchases account | Non-current assets recorded separately |
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
GOLDEN RULES FOR DOUBLE ENTRY QUESTIONS
| Rule | Explanation |
|---|---|
| Every debit must have equal credit | Double entry always balances |
| Learn account classifications | Essential for correct entries |
| Expenses are debited | They reduce profit |
| Income is credited | It increases profit |
| Assets usually carry debit balances | Core accounting principle |
| Liabilities usually carry credit balances | Frequently tested |
HIGH-SCORING EXAM TECHNIQUES
| Question Type | Best Approach |
|---|---|
| State double entry | Write Dr first then Cr |
| Ledger accounts | Use proper T-account format |
| Identify account type | Classify before deciding entry |
| Correction questions | Reverse wrong entry then correct |
| Ledger balancing | Ensure totals agree |
FREQUENTLY TESTED TRAPS
| Trap | Correct Treatment |
|---|---|
| Drawings of goods | Dr Drawings Cr Purchases |
| Cash discount allowed | Expense → Debit |
| Cash discount received | Income → Credit |
| Purchase of machinery | Asset account not purchases |
| Loan received | Liability increases → Credit |
| Accrued expense | Liability created |
QUICK REVISION SUMMARY
| Item | Key Point |
|---|---|
| Debit | Left-hand side |
| Credit | Right-hand side |
| Assets | Increase with debit |
| Liabilities | Increase with credit |
| Income | Credit entry |
| Expenses | Debit entry |
| Double Entry | Two equal effects |
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.