ACCOUNTING FOR ALL
THIRD EDITION
M Schutte
Chapter 3
Recording transactions
(double-entry system)
Outcomes
You should be able to:
Identify the accounts involved in relation to different
transactions
Classify accounts as asset, liability, income and
expense accounts
Recognise when to debit or credit an account by
applying the basic rules for the increasing/decreasing
of asset, liability, income and expense accounts
Record transactions as debits or credits in general
ledger accounts correctly
Calculate the balance of an account
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What is the double-entry system?
For every debit entry, a credit entry for the
same amount needs to be recorded.
For each transaction there are two entries (one
debit and one credit.
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Transaction
One on the left- One on the right-
hand side (debit hand side (credit
side) of an side) of an
account account
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Ledger accounts: Look like a capital T
Name of the account
Left side Right side
DEBIT CREDIT
If you make the entry If you make the entry on
on the debit side, you the credit side, you have
have ‘debited’ the ‘credited’ the account.
account.
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General ledger accounts:
Which side does an account increase or decrease?
Dr + Any asset account - Cr
Increase Decrease
Dr - Any liability account + Cr
Decrease Increase
Dr + Any expense account - Cr
Increase Decrease
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Dr - Any income account + Cr
Decrease Increase
Dr - Capital + Cr
Decrease Increase
Dr + Drawings - Cr
Increase Decrease
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Assets = Owner’s + Liabilities
equity
To increase To increase To increase
Debit Credit Credit
To decrease To decrease To decrease
Credit Debit Debit
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In applying the double-entry system for a transaction, ask yourself the
following questions:
1. What type of transaction is it?
(cash, credit, returns, drawings)
2. Which two accounts are involved?
3. What are these two accounts?
(asset, liability, expense or income)
4. Did the account increase or decrease?
5. Apply the double-entry system and make a
debit entry as well as a credit entry.
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Balancing accounts
The balance of an account is the amount with which
one side of the ledger account is more than the other
side. It can be the debit or the credit side.
Dr + Bank - Cr
Sales 12 000 Furniture 15 000
Accounts receivable 30 000
Sales 20 000
31 Balance c/f 47 000
62 000 62 000
1 Balance b/d 47 000
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Balancing accounts (cont.)
Leave a line open after last entry.
Draw double lines on the debit side and credit side.
Add up both sides, take the amount of the greater side (our
example debit side) and write it into both double lines(R62 000).
Subtract the total of the lesser side from the total of the greater
side.
(62 000 – 15 000) = balance (R47 000)
Write the balance on the lesser side above the double lines.
Write the balance of the greater side below the double lines. This
means that the debit side of the bank account is R47 000 more
than the credit side.
THIS IS THE BALANCE of the account. Next month, we will start
with this balance.
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