Important Points – Double Entry Bookkeeping (Chapter 2)

Before you record a transaction:

✓ Carefully read the transaction ☺ I mean really carefully

✓ Identify accounts involved in transaction (Bank, Rent, Capital etc.)
✓ Identify which one to debit and to credit

Asset Capital Liability

dr cr dr cr dr cr
+ -- -- + -- +

Revenue/Sales Expense
dr cr dr cr
-- + + --

Remember:
• Every transaction must be entered twice – debit one account and credit the other one
• Debit entry is made on account that receives the value, Credit that gives the value
• Any value taken from the business by the owner is called drawings
• At the end of the period (week, month, quarter, year etc.), the accounts with more than
one entry should be balanced. (ledger account balancing)
• The entries for purchases and sales, and purchase returns and sales returns are
recorded in separate accounts
• Carriage is the cost of transporting goods

What’s the purpose of Trial Balance?

1. Helps in locating arithmetical errors.

2. Trial balance is useful in preparing financial statements.

How many ledgers does a business maintain? One or many and why?
Picture of Ledger

What does term “on account” indicate?