Double Entry Bookkeeping and the General Ledger

09/11/2009

The principles of double entry bookkeeping

As noted earlier financial accounting is about providing useful information in the financial statements to users to enable them to make economic decisions. Bookkeeping is the recording of transactions in the books of an entity. Accountants use the information supplied by the bookkeeper to prepare financial statements.

Contd
Double entry bookkeeping is a systematic method of recording an enterprise transactions in a book called the general ledger. Each page of the ledger is divided into two parts, the left part is the debit side and the right side is the credit side The ledger is divided into sections called accounts In practice each account has its own page

Contd
Double entry bookkeeping is an application of the dual aspect concept. Under this concept transactions affects two accounts and records the flow of value between the accounts To debit an account means to have value flow into that account Whereas to credit an account means to have value flow out of that account

Contd
The money value of each transaction is entered once on each side of the general ledger in different accounts. The actual process of placing the bookkeeping entry in each account is called posting transactions. The main purpose of the double entry system is to provide a means of ascertaining the amount of each type of income, expenditure, the value of assets owned by the business and how much is owned to and by the business.

contd
When the total amount of money on the debit side is greater than the credit, the account is said to have debit balance When the credit side is more than the debit side the account is said to have a credit balance

Summary
Account Type Assets Liabilities Owners equity Revenue (sales) Purchases Incomes Expenses Accounts payable(trade creditors) Accounts receivable(Trade debtors) Increase Debit Credit Credit Credit Debit Credit Debit Credit Decrease Credit Debit Debit Debit Credit Debit Credit Debit Balance Debit Credit Credit Credit Debit Credit Debit Credit

Debit

Credit

Debit

Format of ledger account

Account title

DR
Date Details Folio Amount Date Details Folio

CR
Amount