Recording Transactions - Double Entry

Subject: Accounting
Topic: 3
Cambridge Code: 0452 / 0985 / 7707

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Double Entry Bookkeeping

Double Entry - Every transaction is recorded twice: once as a debit and once as a credit

The Basic Principle

For every debit entry, there must be an equal credit entry (and vice versa).

$\text{Total Debits} = \text{Total Credits}$

This ensures the accounting equation remains balanced.

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Debits and Credits

Debit (DR)

Debits are entered on the LEFT side of an account

Debits increase:

• Assets
• Expenses

Debits decrease:

• Liabilities
• Capital
• Revenue

Credit (CR)

Credits are entered on the RIGHT side of an account

Credits increase:

• Liabilities
• Capital
• Revenue

Credits decrease:

• Assets
• Expenses

Summary Table

Account Type	Debit	Credit
Assets	+	-
Liabilities	-	+
Capital	-	+
Revenue	-	+
Expenses	+	-
Drawings	+	-

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Source Documents

Source Document - Original evidence of a transaction

Common Source Documents

Invoice - Document showing details of sale/purchase

• Buyer and seller details
• Description of goods/services
• Quantity and price
• Terms and payment details

Receipt - Proof that payment has been received

• Amount paid
• Date of payment
• Who paid and to whom
• What payment was for

Cheque Stub - Record of cheque payment

• Date
• Amount
• Payee (person paid)
• Purpose

Bank Statement - Statement showing bank transactions

• Deposits received
• Payments made
• Balance

Cash Register Receipt - Record of cash sales

• Date and time
• Items sold
• Total amount
• Change given

Goods Received Note (GRN) - Proof of delivery

• Supplier details
• Date received
• Goods description
• Quantity and condition

Purchase Order - Request to purchase goods

• Supplier
• Items ordered
• Quantity and unit price
• Delivery date

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The Journal

Journal - Book of original entry where all transactions are first recorded

Journal Format

Date	Account	Debit	Credit	Explanation
1 Jan	Cash (Asset)	10,000		Owner's investment
	Capital (Capital)		10,000	To record investment

How to Record in Journal

1. Write the date
2. Enter the account to be debited (indented slightly)
3. Enter the account to be credited (indented more)
4. Record the amount in debit column for debit entry
5. Record the amount in credit column for credit entry
6. Write explanation on a separate line

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Common Transactions and Their Entries

1. Owner's Capital Invested

Transaction: Owner invests $10,000 cash

	Debit	Credit
Cash	10,000
Capital		10,000

2. Purchase of Fixed Asset

Transaction: Buy equipment for $5,000 cash

	Debit	Credit
Equipment	5,000
Cash		5,000

3. Purchase on Credit

Transaction: Buy inventory for $3,000 from supplier

	Debit	Credit
Inventory	3,000
Accounts Payable		3,000

4. Cash Sales

Transaction: Sell goods for $2,000 cash (cost$1,500)

	Debit	Credit
Cash	2,000
Revenue		2,000
Cost of Goods Sold	1,500
Inventory		1,500

5. Sales on Credit

Transaction: Sell goods for $4,000 on credit (cost$2,500)

	Debit	Credit
Accounts Receivable	4,000
Revenue		4,000
Cost of Goods Sold	2,500
Inventory		2,500

6. Payment of Expenses

Transaction: Pay rent of $800 in cash

	Debit	Credit
Rent Expense	800
Cash		800

7. Receipt of Payment

Transaction: Receive payment of $3,000 from customer

	Debit	Credit
Cash	3,000
Accounts Receivable		3,000

8. Payment to Creditor

Transaction: Pay $2,000 to supplier

	Debit	Credit
Accounts Payable	2,000
Cash		2,000

9. Owner's Drawings

Transaction: Owner withdraws $500 cash for personal use

	Debit	Credit
Drawings	500
Cash		500

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Key Points to Remember

1. Every transaction has debit and credit entries of equal amount
2. Debits on left; credits on right
3. Source document supports each transaction
4. Journal is book of original entry
5. Debit entries increase assets/expenses
6. Credit entries increase liabilities/capital/revenue
7. Always record both sides of transaction

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Practice Questions

1. Record the following transactions using double entry:

   • Owner invests $50,000 cash
   • Buy equipment for $20,000 cash
   • Buy inventory for $15,000 on credit
   • Sell goods for $5,000 cash (cost$3,000)
   • Pay supplier $10,000 on account

2. Explain why double entry bookkeeping is important.

3. Identify the source document for each transaction above.

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Revision Tips

• Always remember: debit left, credit right
• Practice classifying accounts (asset, liability, etc.)
• Use the debits/credits summary table
• Understand why debits and credits balance
• Identify correct source documents for transactions