CP-TLE - 04

CP-TLE - 04Double - entry bookkeepingThe system that accountants use to record financial dataThe system recognizes that every transaction has a twofold effectSo if I loan you P100,000.00, a twofold effect arises because: I give you some money and you receive it. THE TWOFOLD EFFECTS ON BOTH PARTIESThe effect on you: Your cash goes up by P10k and What you owe me also goes up by P100k The effect on me: My cash goes down by P100k and What I am owed by you goes up by P100kTWO LATIN WORDS THAT ARE USED IN ACCOUNTINGDebit (meaning to receive, or value received)Credit (meaning to give, or value given)IN A DOUBLE-ENTRY BOOKKEEPING, THE SYSTEM IS ACHIEVED BY RECORDING THE DEBIT ENTRIES ON THE LEFT HAND SIDE OF THE PAGE, AND THE CREDIT ENTRIES ON THE RIGHT HAND SIDE.

IMPORTANT TERMS TO REMEMBERJournal - is a record that keepsaccountingtransactions in chronological order, i.e. as they occur.Ledger - is a record that keepsaccounting transactions by accounts.Accounts - is a unit to record and summarize accountingtransactions.Achart of accounts(COA) is a created list of theaccountsused by an organization to define each class of items for which money or the equivalent is spent or received.

DateAccountPageDebitCreditEXAMPLE OF JOURNALDateDescriptionPageAmountDateDescriptionPageAmountEXAMPLE OF LEDGER ACCOUNTDEBIT SIDECREDIT SIDESAMPLE CHART OF ACCOUNTSBlock AssignedType of Account100-199Assets200-299Liabilities300-399Owner's Equity400-499Revenues500-599Costs of Goods Sold600-699Expenses700-799Other Revenue800-899Other ExpensesIMPORTANT TERMS IN CHART OF ACCOUNTSASSETS These are possessions or resources owned by the entity. They include physical or tangible possessions such as property, plant, machinery, stock and cash and bank balances.CAPITAL this is the term used to describe the amount that the owners have invested in an entity.LIABILITIES These are the opposite of assets. They are the amounts owed by the entity outside parties. They include loans, bank overdrafts, creditors.DRAWINGS used to record what cash (or goods) the owner has withdrawn from the business for personal use.SALES records the value of goods sold to customers during a particular accounting period. The account includes cash and credit sales.

ENTERING TRANSACTIONS IN ACCOUNTSWhen entering a transaction in an account always make sure that you:

Debit the account which receivesAndCredit the account which givesTRANSACTION #1The proprietor contributes some cash to the businessCASH ACCOUNTSCAPITAL ACCOUNTSDEBITCREDITTRANSACTION #2A van is purchased for use in the business; it is paid for cashVAN ACCOUNTCASH ACCOUNTSDEBITCREDITTRANSACTION #3SOME GOODS ARE PURCHASED ON CREDIT TERMS FROM FREDPURCHASES ACCOUNTFREDS ACCOUNTSDEBITCREDITTRANSACTION #4SOME GOODS ARE SOLD FOR CASHCASH ACCOUNTSALES ACCOUNTSDEBITCREDITPRACTICE EXERCISEADAM HAS JUST GONE INTO BUSINESS. THE FOLLOWING IS A LIST OF HIS TRANSACTIONS FOR THE MONTH OF JUNE 2014 Cash paid into the business by Adam Goods for resale purchased on cash terms Multicab bought for cash One quarters rent for premises paid in cash Some goods sold on cash terms Adam buys some office machinery for cashNote: State which account in Adams books of account should be debited and which account should be credited for each transaction.ANSWERTRANSACTIONSDEBIT (+)CREDIT(-)Cash paid into the business by Adam.CashCapitalGoods for resale purchased on cash termsPurchasesCashMulticab bought for cashMulticabCashOne quarters rent for premises paid in cashRentCashSome goods sold on cash termsCashSalesAdam buys some office machinery for cashMachineryCash