Double Entry,Recording Stocks, Purchases L 2
Transcript of Double Entry,Recording Stocks, Purchases L 2
Introduction to Accounting
Unit 2 : Principles of Double Entry- Recording stocks, sales and
purchases
Objectives
After you have studied this chapter, you should:
Understand what is meant by the double entry system
See how the double entry system follows the rules of the basic accounting equation
Be able to enter transactions using the double entry system
Business Transactions
An event that affects the financial position of a company is a business transaction.
Every transaction has to be recorded.
Double Entry Business transactions are
recorded using the rule of double entry. (i.e. every business transaction will affect two accounts (items))
One account will record the debit entry(receiving) and another account will credit entry(giving).
Double-entry book-keepingThe account is normally in “T”
format.
The name of the account Debit Credit
The Double Entry Book Keeping is based on the principle that every debit has a corresponding credit.
Debit
Credit
Entering transactions in accountsDebit: meaning to receive, or value received.
Debits are normally represented by assets and expenses.
Credit: meaning to give, or value given.
Credits are normally represented by income, sales and liabilities.
Recording a Transaction
A transaction is recorded in a journal.
Journal is a book of prime entry, or basic entry.
All transactions must necessarily be recorded first in the journal
Steps in Recording a TransactionThere are 3 steps to follow while
recording a transaction:1) Identify the 2 accounts affected2) Determine the nature of the
accounts i.e. they can be assets, liabilities, expenses or revenue accounts
3) Debit the account which receives and credit the account which gives.
Rules for double entry bookkeeping
Accounts To record Entry in the account
Assets an increasea decrease
DebitCredit
Liabilities
an increasea decrease
CreditDebit
Capital an increasea decrease
CreditDebit
Multiple choice questions1) Credits:a) increase both assets and
liabilities;b) decrease both assets and
liabilities;c) increase assets and decrease
liabilities;d) decrease assets and increase
liabilities;
2) An account which is increased by a credit is:
a) an asset account;b) a liability account;c) a dividends account;d) an expense account;
Vale has been in business for some years. The following balances were brought forward in his books of account as at 31 December, 2007.
Bank 5,000
Capital 20,000
Cash 1,000
Dodd 2,000
Fish 6,000
Furniture 10,000
22,000 22,000
During the year to 31 December 2008 the following transactions took place.
1. Goods bought from Dodd on credit for 30,0002. Cash sales of 20,0003. Cash purchases of 15,0004. Goods sold to Fish on credit for $50,0005. Cheques sent to Dodd totaling $29,0006. Cheques received from Fish totaling 45,0007. Cash received from Fish amounting to $7,0008. Office expenses paid in cash totaling 9,0009. Purchase of delivery van costing $12,000 paid
by cheque10. cash transfers to bank totaling $3,000
Required:
1. Compile Vale’s ledger accounts for the year 31 December 2007, balance off the accounts and bring down the balances as at January 2008.
2. Extract a trial balance as at 31 December 2007.
Bank account
Debit Credit1.1.07 Balanc
e b/d5,000 31.12.0
7Dodd 29,00
0
31.12.07
Fish 45,000
31.12.07
Delivery Van
12,000
31.12.05
Cash 3,000 31.12.07
Balance c/d
12,000
53,000
53,000
1.1.08 Balance b/d
12,000
Capital account
Debit Credit
1.1.07 Balance b/d
$20,000
Cash account
1.1.07 Balance b/d
1,000 31.12.07
Purchases 15,000
31.12.07
Sales 20,000 31.12.07
Office expenses
9,000
31.12.07
Fish 7,000 31.12.07
Bank 3,000
28,00031.12.07
Balance c/d
1,00028,000
1.1.06 Balance b/d
1,000
Dodd’s account
31.12.07
Bank 29,000 1.1.07 Balance b/d
2,000
31.12.07
Balance c/d
3,000 31.12.07 Purchases 30,000
32,000 32,000
1.1.08 Balance b/d
3,000
Fish’s account1.1.07 Balance
b/d6,000 31.12.07 Bank 45,000
31.12.07
Sales 50,000 31.12.07 Cash 7,000
31.12.07 Balance c/d
4,000
56,000 56,000
1.1.08 Balance b/d
4,000
Purchases account
Dr Cr
31.12.07
Dodd 30,000
31.12.07 Cash 15,000 31.12.06 Balance c/d
45,000
45,000 45,000
1.1.08 Balance b/d
45,000
Sales account
31.12.05 Balance c/d
70,000 31.12.07 Cash 20,000
31.12.07 Fish 50,000
70,000 1.1.08 Balance b/d
70,000
Vale
Trial Balance at December 2007
Dr $ Cr $
Bank 12,000
Capital 20,000
Cash 1,000
Dodd 3,000
Fish 4,000
Furniture 10,000
Purchases 45,000
Sales 70,000
Office expenses 9,000
Delivery Van 12,000
93,000 93,000