Double Entry Bookkeeping Flashcards
What does Double Entry mean?
- For every transaction, there will be two equal accounting entries made
- It has the Convention of Dual Aspect
- 1 is Debit, 1 is Credit
- These are equal and opposite
What accounting model will these transactions enter?
- A T-Account
- Each Transaction will feature in two separate transaction
- You will end up with a lot of T-Account
Explain the DEBK process
- All transactions must be entered into a T-Account
- After this, the balance on each account is entered into a ‘Trial Balance’ (Big T-Account)
- The two things should balance
- Entries in Trial Balance are used to prepare financial statement
What is the Accounting Equation?
- Assets - Liabilities = Capital + Revenue - Expenses
What is the Trial Balance Equation?
- Assets + Expenses = Capital + Revenue + Liabilities
If Asset values are increased, what side would you put it on?
- Debit
- If Expense values are decreased, it would be on the Credit side.
If Capital values are increased, what side would you put it on?
- Credit
- If Revenue or Liability values are decreased, it would be on the Debit side
What does debit or credit mean (in terms of giving/receiving) ?
- Debit, to receive, thus value received
- Credit, to give, thus value given
Name some examples of Asset Accounts
- Bank: Records money kept at the bank by the entity
- With a bank account, debit always comes in and credit always goes out
- Cash: Notes and coins coming in and out of a business
- Trade Receivable: When the entity sells goods to customers and grants credit, which will later come back
- Machinery/Vehicles(etc): A non-current asset which will have enduring benefits for >1yr
Name some examples of Expense Accounts
- Purchases: Refers to goods bought with the intention of later resale
- Gas/Wages/Electricity/Rent(etc): Payments made for services rendered to the entity to help it have sales revenue- must open separate accounts for different things
Name the example of Capital Accounts
- Capital (Owner’s Equity): Records the contributions made by an owner
Name the example of Revenue Accounts
- Sales: Records of the value of goods and services sold
- Settlement will be in other accounts (Bank/Cash)
Name some examples of Liability Accounts
- Trade Payable: The entity making a purchase based on credit (E.G- Suppliers)
- Loan: An institution or person whom the entity has borrowed from
What are some other accounts?
(Contra-Accounts)
- Discount: Reduces liabilities- the supplier/firm/individual reduces the amount needed to repay on the loan or trade payable
- Drawings: Reduces assets- the owner taking out assets for personal use
How do you make a Sale on Credit?
- You open a ‘Trade Receivable’ account, Debit it and then Credit it when money comes in (BANK/CASH)
How do you make a Purchase on Credit?
- You open a ‘Trade Payable’ account, Credit it and then Debit it when money goes out (BANK/CASH)
How do you make a Discount?
- You open a Discounts account, you credit it and debit it under the Trade Payable or Trade Receivable
How do you make a Return?
You ‘cancel out’ the action - change the side of the original transaction