Rules for Double Entry Accounting Normally TWO entries, one Dr and one Cr

Ledger recording is based on a widely accepted set of rules.

The left hand column of all ledger accounts is known as DEBIT or “DR”.

The right hand column of all ledger accounts is known as CREDIT or “CR”.

Example; my business has $10 in its bank (CA or Asset)

And owes $3 (CL or Liability) to Mr Scrooge
So the equity (EQ) or value of the business is $7

A = L + EQ
10 = 3 + 7

EQ = A - L
7 = 10 - 3

L = A - EQ
3 = 10 - 7
(This is the basic accounting equation)

It is commonly accepted that Assets increase on the debit side; that is, left hand side and decrease on
the right hand side. Whereas changes in Liabilities must be recorded on the opposite side to assets, in
order to keep the accounting equation in balance.

Liabilities increase on the credit side and decrease on the debit side.

Changes in Equity are recorded on the same side as Liabilities, again so the basic accounting equation
remains in balance.

ASSETS LIABILITIES + EQUITY

INCREASE Debit  Credit 

DECREASE Credit  Debit 

This is essential for our “double entry” recording process to work properly and for the Balance Sheet
to remain “in balance”.

Page 1 of 12
Day 1: I start a business with 1,000 in my bank (in to bank Debit/dr and out of capital Credit/cr)
Day 2: I spend cash and buy a computer for 600 (in to computer as a computer comes in to the
business to be used by the business Debit/dr and cash/money went out of the bank Credit/cr tom pay
for it)
Day 3: I get a 2 year loan from Loanshark bank for 800 (in to business bank Debit/dr and out of loan
Credit/cr as in the future the business has to pay out bank and repaid the loan)

Day 1

Bank
Jan 01 Capital 1,000 1,000 DR

Capital
Jan 01 Bank 1,000 1,000 CR

Trial Balance
Debit (DR) Credit (CR)
Bank 1,000
Capital 1,000
$1,000 $1,000

Day 2

Bank
Jan 01 Capital 1,000 1,000 DR
02 Computer 600 400 DR

Capital
Jan 01 Bank 1,000 1,000 CR

Computer
Jan 02 Bank 600 600 DR

Trial Balance
Debit (DR) Credit (CR)
Bank 400
Capital 1,000
Computer 600
$1,000 $1,000

Page 2 of 12
 Day 3

Bank
Jan 01 Capital 1,000 1,000 DR
02 Computer 600 400 DR
03 Loan 800 1,200 DR

Capital
Jan 01 Bank 1,000 1,000 CR

Computer
Jan 02 Bank 600 600 DR

Loan
Jan 03 Bank 800 800 CR

Trial Balance
Debit (DR) Credit (CR)
Bank 1,200
Capital 1,000
Computer 600
Loan 800
$1,800 $1,800

Page 3 of 12
 Balance Sheet as at Day 3
  Notes $ $ $
Current Assets
Bank 1,200
Total Current Assets 1,200
Non-Current Assets
Property, Plant and Equipment
Total Carrying Amount 600
Total Non-Current Assets 600
Total Assets 1,800
Liabilities
Current Liabilities

Total Current Liabilities

Non-Current Liabilities
Loan 800
Total Non-Current Liabilities 800
Total Liabilities 800
Net Assets $1,000

Equity
Opening capital 1,000
Plus profit 0
  1,000
Less Drawings 0
Closing capital $1,000

Page 4 of 12
Practice question 1
Day 1: I start a business with 800 in my bank
Day 2: I spend cash and buy a computer for 300
Day 3: I get a 2 year loan from Loanfish bank for 1200

Bank

Capital

Computer

Loan

Trial Balance
Debit (DR) Credit (CR)

How much is the business worth? Complete the balance sheet:

Page 5 of 12
 Practice question 1

Balance Sheet as at Day 3

  Notes $ $ $
Current Assets

Total Current Assets

Non-Current Assets
Property, Plant and Equipment
Total Carrying Amount
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities

Total Current Liabilities

Non-Current Liabilities

Total Non-Current Liabilities

Total Liabilities
Net Assets

Equity
Opening capital
Plus profit
 
Less Drawings
Closing capital

Page 6 of 12
Practice question 1 Answer
Day 1: I start a business with 800 in my bank
Day 2: I spend cash and buy a computer for 300
Day 3: I get a 2 year loan from Loanfish bank for 1200

Bank
Jan 01 Capital 800 800 DR
02 Computer 300 500 DR
03 Loan 1,200 1,700 DR

Capital
Jan 01 Bank 800 800 CR

Computer
Jan 02 Bank 300 300 DR

Loan
Jan 03 Bank 1,200 1,200 CR

Trial Balance
Debit (DR) Credit (CR)
Bank 1,700
Capital 800
Computer 300
Loan 1,200
$2,000 $2,000

How much is the business worth? Complete the balance sheet:

Page 7 of 12
 Practice question

Balance Sheet as at Day 3

  Notes $ $ $
Current Assets
Bank 1,700
Total Current Assets 1,700
Non-Current Assets
Property, Plant and Equipment
Total Carrying Amount 300
Total Non-Current Assets 300
Total Assets 2,000
Liabilities
Current Liabilities

Total Current Liabilities

Non-Current Liabilities
Loan 1,200
Total Non-Current Liabilities 1,200
Total Liabilities 1,200
Net Assets $800

Equity
Opening capital 800
Plus profit 0
  800
Less Drawings 0
Closing capital $800

Page 8 of 12
Practice question 2
Day 1: I start a business with 600 in my bank
Day 2: I get a 2 year loan from Loanfish bank for 1100
Day 3: I spend cash and buy a computer for 2000

Bank

Capital

Computer

Loan

Trial Balance

How much is the business worth? Complete the balance sheet:

Page 9 of 12
 Practice question 2

Balance Sheet as at Day 3

  Notes $ $ $
Current Assets

Total Current Assets

Non-Current Assets
Property, Plant and Equipment
Total Carrying Amount
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Bank overdraft
Total Current Liabilities
Non-Current Liabilities
Loan
Total Non-Current Liabilities
Total Liabilities
Net Assets

Equity
Opening capital
Plus profit
 
Less Drawings
Closing capital

Page 10 of 12
Practice question 2 Answer
Day 1: I start a business with 600 in my bank
Day 2: I get a 2 year loan from Loanfish bank for 1100
Day 3: I spend cash and buy a computer for 2000

Bank
Jan 01 Capital 600 600 DR
02 Loan 1,100 1,700 DR
03 Computer 2,000 300 CR

Capital
Jan 01 Bank 600 600 CR

Computer
Jan 03 Bank 2,000 2,000 DR

Loan
Jan 02 Bank 1,100 1,100 CR

Trial Balance
Debit (DR) Credit (CR)
Bank 300
Capital 600
Computer 2,000
Loan 1,100
$2,000 $2,000

How much is the business worth? Complete the balance sheet:

Page 11 of 12
 Practice question 2

Balance Sheet as at Day 3

  Notes $ $ $
Current Assets

Total Current Assets

Non-Current Assets
Property, Plant and Equipment
Total Carrying Amount 2,000
Total Non-Current Assets 2,000
Total Assets 2,000
Liabilities
Current Liabilities
Bank overdraft 300
Total Current Liabilities
Non-Current Liabilities
Loan 1,100
Total Non-Current Liabilities 1,100
Total Liabilities 1,400
Net Assets $600

Equity
Opening capital 600
Plus profit 0
  600
Less Drawings 0
Closing capital $600

Page 12 of 12