DOUBLE ENTRY SYSTEM

In a business environment, every transaction affects two items. To show the full effect of each
transaction, accounting must therefore show its effects on each of the two items; be them assets,
liabilities or capital. These effects can either be an increasing (receiving) or a decreasing (giving out)
effect on the item. Thus to show these effects, each transaction is entered twice hence the name double.

Double entry Principle: this states that for every credit entry there must be a corresponding debit entry
and for every debit entry there must be a corresponding credit entry.

NB: Debit entry refers to any entry made on the debit side of the account while a credit entry refers
to any entry made on the credit of the account.

Double entry rule for assets, liabilities and capital

Account To record Entry
Increase Dr
Asset
Decrease Cr
Increase Cr
Liability
Decrease Dr
Increase Cr
Capital
Decrease Dr

NB: the double entry rule for liabilities and capital is the same and it exactly the opposite for asset.

MEANING OF AN ACCOUNT
An account is a ledger record, in a summarized form, of all the transactions that have taken place with
the particular person at specific date and value specified, An Account can also be called a place or
location within an accounting system in which the decrease or increase in a specific asset, liability or
capital is recorded and stored. The account is divided into two halves. The left side called the debit side
and the right side called the credit side. The title of the account is written across the top of the account
at the center as shown below
 Name

Debit (Dr) Credit (Cr)

CLASSIFICATION OF ACCOUNTS
Accounts can be classified into personal and impersonal

i. Personal accounts: these are simply the accounts of those parties that a business deals with.
They are opened in the names of those parties. They are usually the suppliers and customers of
the business. Examples of such accounts include debtors, creditors. Also note that capital
account also comes under the category of personal accounts.

ii. Impersonal accounts: these are used to record transaction other than those relating to people or
business organizations. Impersonal accounts are further classified into:
a) Real accounts: are accounts that refers to the possessions of a business. The possessions
may be tangible or intangible. E.g land and building account, stock account, plant and
machinery account, motor vehicles account, goodwill etc.
b) Nominal Accounts: refers to all those accounts that are in the nature of incomes and
expenses. E.g. discount received and allowed accounts, rent account, sales accounts and
purchase account, etc.

Balancing off Accounts

At the end of each period, after all transactions have been recorded in the books of accounts, they are
balanced off to give a summary of the transactions for the period. In balancing an account, you add both
sides of it and put the total of the side with the highest amount on both sides, then find their difference
and record it on the smaller side. This balancing figure is called balance carried down (c/d) and when it is
being carried to the next accounting period, it is refer to as balance brought forward/ down (b/f or
b/d ). After the accounts have been balanced, they will either have:

1) A debit balance: occurs where the total of the debit side exceeds the total of the credit side. A
debit balance represents either:
 An asset-this is recorded in the balance sheet
 An expenses-this is recorded in the profit and loss account
2) A credit balance: is a situation that arises when the total of the credit side exceeds that of the
debit side. A credit balance represent:
 A liability- which is recorded in the balance sheet.
 An income this is recorded in the profit and loss account.
 The ledger

The ledger: is the main book of accounts. It is where all accounts in a business are being kept. There are
many types of ledgers and depending on the size of the business, firms can maintain three, four or five
legers; namely:

 Debtors/ sales ledger- where all personal accounts of debtors are being maintained
 Creditors/ Purchases ledger- where all personal accounts of creditors are kept
 General ledger- in which all other accounts (i.e. either personal accounts of debtors or creditors)
are maintained
 Nominal account- this is where all revenue and expenses are maintain
 Private ledger- in this ledger transactions between the proprietor and the business are being
maintained there

TRIAL BALANCE
The trial balance is a list of debit and credit balances of accounts extracted from ledger account at a
particular time. The trial balance is not an account. The main purpose of it is to check the arithmetic
accuracy of the double entry. It does this simply by listing all the balances b/d on both the credit and
debit sides and then compare their totals. If the total on both sides agree, then it is assumed that the
posting are correct but it does not mean that the bookkeeping is perfect. This is because a balanced trial
balance may contain errors. Thus, there are some errors when made do not affect the balancing of the
trial balance. Such errors includes error of omission, compensation error, error of original entry, error of
principle, complete reversal of entries, and error of commission. However, some errors do affect the
balancing of the trial balance e.g. error of single entry, error of transposition.

Exercises
1. From the following transactions, write up the books of accounts, balance off the account and
extract a trial balance as at 31st January, 2000
Jan 1: Musa started business with capital of D10000 cash
3: Bought furniture for D1500 cash
7: Purchase goods for resale cash D3500
9: Received cash from Dawda D5000
11: Sold goods for cash D900
15: bought goods for cash D1000
17: paid rent by cash D500
18: paid salary to assistant D600 cash
20: paid electricity cash D75
23: Bought stationery for office use D150 cash
24: Sold goods for cash D800
 26: Bought office tables and chairs D900 cash
29: Withdrew cash for personal use D150
31: Paid wages cash D200

2. Prepare a trial balance as at 30 June 2005 from the following information: rent D1560, capital
D52799, insurance D305, drawings D6278, lighting expenses D516, cash at bank D1134, motor
expenses D 1960, buildings D28000, salaries & wages D4850, fixtures D3960, sales D35600,
debtors D6810, purchases D30970, creditors D3250, sundry expenses D1806, motor van D3500

3. Enter the following information into the double entry, balance off the accounts and prepare a
trial balance as at the end of the period 31 January 2008.
Jan 1: started business with D8000 in the bank
2: Bought stationery by cheque D30
3: Bought goods on credit from Isatou Sinera D900
4: Sold goods for cash D180
5: Paid insurance by cash D40
15: Bought machinery on credit from Mariama Sanneh D500
25: Return goods to Isatou Sinera D70
26: Paid rent by cheque D100
30: Bought equipment by cheque D150

4. Adam started business on January 1, 2012 with a capital of D 16,000.

The following transactions were carried out during the month of January.
January 1 purchased furniture by cash D2,400.
2 purchased stationary D200 cash.
3 purchased goods by cash D3,500
4 purchased goods on credit Mariama D5,000.
15 sold goods for cash D6,000.
18 Sold goods Kwame on credit D2,400.
20 Paid advertisement expenses D200 cash.
25 paid Ado D3,500 cash being part of settlements of goods purchased.
28 paid rent in cash D3,00.
31 paid salaries and wages D6,00 cash.
You are required to write up Ledger Accounts recording the above transactions and extract a
Trial Balance.