THE PRINCIPLE OF DOUBLE ENTRY

The principle of double entry requires that the dual effect of every transaction should be recorded by posting a debit entry to one account and a corresponding credit entry to another account. Simply put; “For every debit entry, there must be a corresponding credit entry and vice versa”.

An account can be defined as a record in double entry system that is kept for capital and each class of asset, liability, revenue and expense.

Layout of an account

Title of the account
Debit side	Credit side

Each transaction carried out must affect either of the following class of accounts; capital, asset, liability, revenue or expense.

The amount of resources supplied by the owner of a firm is known as capital.

Assets are the resources of the business e.g. land, building, cash, furniture, fixture & fittings stock, debtors, machinery.

Liabilities are the indebtedness of the firm for the resources owned by the firm or the indebtedness of the firm to outsiders. It consists of money owed for goods supplied to the firm, for expenses and also for loan made to the firm e.g. loan, trade creditor, rent owing e.t.c.

Revenue consists of monetary value of goods and services that have been delivered to customers e.g. sales, discount received, commission receivable, rent receivable e.t.c.

Expenses consist of the monetary value of the assets used up in obtaining the assets. That is, those costs incurred in the operations of the firm e.g. rent, wages, salaries e.t.c.

RULES FOR DOUBLE ENTRY RECORDING

1. To record an increase in asset debit the asset account. To record a decrease in asset credit the asset account.

2. To record an increase in capital/liability account, credit the capital account; To record a decrease in capital debit the capital account.

3. To record an increase in revenue, credit the revenue account; to record a decrease in revenue debit the revenue account/income account.

4. To record an increase in expense, debit the expense account; to record a decrease in expense credit the expense account.

PROCEDURES FOR DOUBLE ENTRY RECORDING

i. Identify the transaction

ii. Identify the accounts affected by the transaction

iii. Identify the class of the accounts affected

iv. Identify how the accounts were affected (increase or decrease)

v. Apply the rules of double entry to record the transaction in the accounts

Example: You are required to enter up the necessary accounts for the month of May from the following information relating to a small printing firm.

2013.

May 1 Started business with capital in cash of N 800 and N 2,200 in the bank

2 Bought goods on credit from the following persons: J. Wadada N 610; P. Green N214, M. Taylor N 174, S Gemade N 345, P John N 542.

4 Sold goods on credit to: J. Shuwa N 340, G. Buchi N 720, F. Tunde N 1,152

6 Paid rent by cash N 180

9 J. Shuwa paid us N 3, 400 by cheque

10 F. Tunde paid us N 1, 000 by cheque

12 We paid the following by cheque; m. Taylor N 174, J. Wadada N 610

15 We paid carriage by cash N 38

18 Bought goods on credit from P. Green N 291, S. Gemade N 940

21 Sold Goods on credit to G. Buchi N 810

31 Paid rent by cheque N 230

Solution

Capital Account
31/5/13 Bal ^c/_d	N 3, 000 3, 000	1/5/13 Cash 1/5/13 Bank 1/6/13 Bal ^b/_d	N 800 2, 200 3, 000 3, 000
Cash Account
1/5/13 Capital 1/6/13	N 800 ____ 800 582	6/5/13 Rent 15/5/13 Carriages 1/6/13 Bal ^c/_d	N 180 38 581 800

Bank A/C

		N			N
1/5/13	Capital	2,200	12/5/13	M. Taylor	174
9/5/13	J. Shuwa	340	12/5/13	J. Wadada	610
10/5/13	F. Tunde	1,000	31/5/13	Rent	230
		____	31/5/13	Bal c/d	2,526
		3,540			3,540
1/6/13	Bal b/d	2,526

Purchases A/C

		N			N
2/5/13	J. Wadada	610	31/5/13	Bal c/d	3116
“	J. Shuwa	340
“	P. Green	214
“	M. Taylor	174
“	S. Gemade	345
“	P. Tolu	542
18/5/13	P. Green	291
“	S. Gemade	940_			____
		3116			3116
1/6/13	Bal b/d	3116

J Wada A/C

		N			N
12/5/13	Bank	610	2/5/13	Purchases	610

P. Green A/C

		N			N
31/5/13	Bal c/d	505	2/5/13	Purchases	214
			18/5/13	Purchase	291
		505			505
			1/6/13	Bal. b/d	505

M. Tayor A/C

		N			N
2/5/13	Bank	174	2/5/13	Purchases	174

S. Gemade A/C

		N			N
31/5/13	Bal c/d	1,285	2/5/13	Purchases	245
			18/5/13	Purchases	940
		1,285			1,285
			1/6/13	Bal c/d	1,285

P. Tolu A/C

		N			N
31/5/13	Bal c/d	542_	2/5/13	Purchases	542__
			1/6/13	Bal c/d	542

Sales A/C

		N			N
31/5/13	Bal c/d	3022	4/5/13	J. Shuwa	340
			“	G. Buchi	720
			“	F. Tunde	1,152
		____	21/5/13	G. Buchi	810_
		3022			3022
			6/6/13	Bal. b/d	3022

J. Shuwa A/C

		N			N
31/5/13	Sales	340	9/5/13	Bank	340

G. Buchi A/C

		N			N
4/5/13	Sales	720	31/5/13	Bal c/d	1,530
21/5/13	Sales	810__			____
		1,530			1530
16/5/13	Bal b/d	1,530

F. Tunde A/C

		N			N
4/5/13	Sales	1,152	10/5/13	Bank	1000
		_____	31/5/13	Bal c/d	152
		1,152			1,152
16/5/13	Bal b/d	152

G. Buchi A/C

		N			N
6/5/13	Cash	180	31/5/13	Bal c/d	410
31/5/13	Bank	230			____
		410			410_
1/6/13	Bal b/d	410

Carriage A/C

		N			N
15/5/13	Cash	38	31/5/13	Bal c/d	38


1/6/13	Bal b/d	38

THE PRINCIPLE OF DOUBLE ENTRY

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