DOUBLE ENTRY BOOKKEEPING SYSTEM

DEBIT(DR) CREDIT (CR)

DEBIT(DR CREDIT (CR)

“WHAT YOU DO ON THE LEFT” “YOU DO ON THE RIGHT”

ACCOUNTING EQUATION
ASSETS= OWNER’S EQUITY + LIABILITIES
A law firm incur expenses and acquire assets such as table, computer, or furniture.
Transactions depending on what they are, they may be written on the left- or right-hand
side.
For every debit entry, there is always an equal credit entry in a separate tear or ledger
account.
1. EXPENSES
The expenses are the costs incurred in or required for something for examples
salaries, electricity bill, telephone account, rent or water bills.

• The expenses incurred will be written on the debit side.

• If a law firm is paying off an expense or does not have an expense at all, then
it will appear on the credit side.

Debit (DR) Credit (CR)

+ -

2. Assets (Transaction that increases assets)

They are durable, for example computer, desk, telephone system (actual telephone)

• Transactions that increase assets are written right side(debit);

• Transactions that decreases assets are written on left side(credit).

Debit (DR) Credit (CR)

+ -

3. Income

Usually earned in the form of fees such as fees charged to clients, instructions, or
appearances fees or when they receive commission for amount collected on behalf
of clients (Income you get in a low firm)
 • What you will be charging client or commission, it will increase on the credit
side (e.g. if a client pays money for instructions you took on behalf of their
client.
• If you give client discount for fees, the transaction will be on the debit side.

Debit (DR) Credit (CR)

- +

4. Liabilities
Asking a bank for money to be used as a capital to start a business, overdraft, buying
tables or computers of the firm on credit.

• Buying an item on credit for the firm, this will be entered on the credit side.
• But paying off a debt, this will be entered on the debit side.

Debit (DR) Credit (CR)

- +

5. Owner’s Equity
Money that is introduced into the firm. It is capital. E.g. A partner at law firm pays R
5000 into the bank to commence with business.

• Money for the purposes of capital for firm will be entered on the credit side.
• Withdrawing from capital from capital will decreases on debit side.

Debit (DR) Credit (CR)

- +
Example 1
YOU PAY RENT FOR R900
You debit rent with R9000 and credit bank with R9000

EXAMPLE 2:
YOU DEPOSIT R10 000 INTO ABSA TO START YOUR BUSINESS
You debit bank with R10 000 and credit capital with R10 000

EXAMPLE 3:
YOU BUY A COMPUTER ON CREDIT FOR R4000
You debit computer with R4000 and credit creditor with R4000

EXAMPLE 4:
YOU CHARGE MRS MABITSELA R6000 FOR FEES
You debit Mrs Mabitsela with R6000 and credit fees with R6000

EXAMPLE 5:
MRS MABITSELA PAYS R6000
You debit bank with R 6000 and credit Mrs Mabitsela with R6000

EXAMPLE 6:
YOU SELL YOUR COMPUTER WHICH HAD COST R3000, FOR R3000
You debit bank with R3000 and credit computer with R3000

CLASS EXERCISE:
1. YOU PAY R20 000 INTO TYME BANK TO USE FOR YOUR LEGAL PRACTICE
Debit bank and credit capital

2. YOU BUY OFFICE FURNITURE ON CREDIT FOR R15 000

Debit furniture and credit credifor

3. YOU BUY A COMPUTER FOR R6000 CASH

Debit computer and credit bank

4. YOU PAY RENT FOR JULY OF R3000

Debit rent and credit bank

5. YOU RENDERED LEGAL SERVICES TO KHAWULA AND CHARGE R10000

Debit kwawula and credit fees

6. YOU AGREE TO REDUCE KHAWULA’S FEES BY R1000

Debit bank and credit fees

7. KHAWULA PAYS YOU R9000

Debit bank and credit Khawula
 8. YOU PAID OFF R7500 FOR THE FURNITURE
Debit creditor and credit bank

9. YOU SELL YOUR OFFICE CHAIRS WORTH R4000, FOR R4000

Debit bank and credit chair
QUIZ
ANSWERS
ANSWERS
BANK RECONCILIATION

INTRODUCTION
→ A cashbook is in essence a reflection/mirror of a bank statement.
→ On a monthly basis, the practice receives a bank statement from the bank/
can obtain it from the banking application or website.
→ On receipt of a bank statement, the closing balance reflected thereon must
be compared with the closing balance in the cashbook.
→ If these balances do not correspond, the reason for the difference must be
investigated.
→ This is done by performing a bank reconciliation.

PURPOSE OF BANK RECONCILIATION:

→ To ensure accuracy and control over cash (moneys received and payments
made)
→ To prevent fraud.
→ To achieve this purpose, the entries in the cashbook must be compared
with the entries on the bank statement and vice versa.
→ This procedure should be done at least monthly by way of a supplementary
cashbook and a bank reconciliation statement for both the trust account and
business account.

REASONS FOR DIFFERENCES IN THE CASHBOOK AND THE BANK

STATEMENT:

1. Transactions on the bank statement that do not appear in the cashbook.

2. Transactions in the cashbook that do not appear on the bank statement.
3. Errors made by the bank on the bank statement.
4. Errors made by the practice/firm in the cash book.

TO PREPARE A BANK RECONCILIATIOM THE FOLLOWING IS

REQUIRED:
1. The previous month’s bank reconciliation statement.
2. The cashbook reflecting the entries for monies received (debits), payments
made (credits), and the closing balance for a specific period.
3. The bank statement reflecting the inflow (credits) and outflow (debits) of
monies as well as the balances on the account for the same specific period as
the cashbook.

TRANSACTIONS CAUSING THE DIFFERENCE IN THE BALANCES (THE

RECONCILING ITEMS)
1. Transactions in the cashbook but not on the bank statement
a. Post-dated EFT payments
b. Outstanding deposits

2. Transactions on the bank statement but not in the cashbook

a. Bank (service) charges- Trust and business
b. Interest received
c. Interest paid/charges
d. Direct deposits by/from clients
e. Electronic Fund Transfers by/from clients
f. Stop order payments
g. Debit order payments
3. Errors
a. Bank errors
b. Practice errors

HOW TO PREPARE A SUPPLEMEMENTARY CASHBOOK AND A BANK

RECONCILIATION STATEMENT
1. Open a supplementary cashbook for the month concerned.
2. Open/ create a bank reconciliation statement for the month concerned.
3. Start the supplementary cashbook with the current closing balance. A
favourable balance is recorded on the debit side, and unfavourable/overdrawn
balance is recorded on the credit side.
4. Start the bank reconciliation statement with the current closing balance on
the banking statement. A favourable balance is recorded on the credit
side/column, and an overdrawn/unfavourable balance is recorded on the debit
side/column.
5. Recorded transactions not appearing on either/ transactions that are
different

NB!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! When recording transactions, keep this in

mind:
1. Interest received – Update Supplementary Cashbook – Debit the amount.
2. Interest charged – Update Supplementary Cashbook – Credit the amount
3. Bank charges – USC – Credit the amount
4. Direct Deposit- USC – Debit the amount
5. EFT – USC – Debit the amount
6. Firm reverses a payment – USC – Debit the amount
7. Client reverses a payment – USC – Credit the amount
8. Scheduled Payment – USC – Debit the amount
9. Debit/Stop order – USC – Credit the amount
10. Outstanding deposit – Explain – Bank Reconciliation Statement
10. Errors:
Practice error – USC - Reverse and Record
Bank error – Explain – Bank Reconciliation Statement

N.B on Practice error

o If it is an error made when you were paying money/ money going out of
the firm, you must debit the incorrect amount and credit the correct
amount.
 o If it is an error made when you were receiving money/money coming to
the firm, you must debit the correct amount and credit the incorrect
amount.
SUPPLEMENTARY CASHBOOK
When the balance is favourable, you must debit the balance.
After adding all of those amount on the debit side, you must subtract the total
amount with the amount/s on the credit side, it will then give you the amount
carried over and the amount brought down
If it is an unfavourable balance, you must credit the balance.
After adding all of those amount on the credit side, you must subtract the total
amount with the amount/s on the debit side, it will then give you the amount carried
over and the amount brought down.
BANK RECONCILIATION STATEMENT
When the balance is favourable, you must credit the balance.
You must add the balance that is on the credit side with the amount/s on the credit
side also, it will then give you the amount that must balance with the amount
brought down and carried over from the Supplementary Cashbook.
If it is an unfavourable balance, you must debit the balance.
You must subtract the balance that is on the debit side with the amount/s on the
credit side, it will then give you the amount that must balance with the amount
brought down and carried over from the Supplementary Cashbook.
 QUESTION 1

Your trust cashbook balance on the 30th of June 2023 reflected a favourable balance of R
65 000. The bank statement balance on the same date was R 114 516.
A comparison of the cashbook and the bank statement for June 2023 reveals the following:
1. Interest of R 7 100 on the favourable balance has not been entered in the cashbook.
2. A payment of rent of R 1 800, due on the 3rd of July 2023 does not appear in the bank
statement.
3. A deposit of R 3 114 made on the 28th of June 2023 is not reflected on the bank
statement.
4. A payment for R 2 736 authorized from the business banking account has been
erroneously paid by the bank from the trust banking account.
5. Due to dissatisfaction of service, client Zinjhiva, reserved his payment for fees of R
734.
6. An EFT transfer of R 30 000 from client Vukosi has not been entered in the cashbook.
7. Post-dated payments/scheduled totaling R 17 200 appear in the cashbook and not in
the bank statement.
You are required to prepare:
a. The supplementary cashbook for June 2023.
b. The bank reconciliation statement as at June 2023.

Supplementary TCB of June 2022

Balance 65 000 Reversed payment 734

Interest received 7 100 Balance carried over 120 363

Scheduled payment 1800

Direct deposit 30 000
Scheduled payment 17 200
121 100 121 100

Balance brought down 120 363

 Bank reconciliation statement as of 30 June 2022
Balance 114 516

Outstanding deposit 3114

Bank error 2736

Balance as per cashbook 120 366
 QUESTION 2

Your business cashbook balance on the 31st of May 2023 is R 75 177 and on the
same date your bank statement balance was R 39 855.
A comparison of your cashbook and bank statement for May 2023 reveals the
following:

1. A payment due on the 5th of June 2023 of R3 000 appears only in the
cashbook.
2. An EFT payment from client Khazamula of R1 178, has not yet been entered
in the cashbook.
3. Due to dissatisfaction of service, client Bhejani reversed his payment of R
25 000.
4. A payment of R 7 200, authorized from the trust cashbook, has been
erroneously paid by the bank from the business bank account.
5. A deposit of R 900 made by a client does not appear in the bank statement.
6. A deposit (money received) of R2 900 has been incorrectly entered in the
cashbook as R 9 200.
7. A payment for R4 100 has been incorrectly recorded in your cashbook as R
4 000.
You are required to:
a. Prepare a supplementary cashbook for May 2023.
b. Prepare a bank reconciliation statement as at 31st May 2023.

Supplementary BCB of June 2022

Balance 75 177 Reverse Payment 25 000

Scheduled payment 3000 Practice Error 9200

EFT 1178 Practice Error 4100

Practice Error 2900 Balance carried over 47 955
Practice Error 4000
86 255 86 255

Balance brought down 47 955

 Bank reconciliation statement as of 30 June 2022
Balance 39 855

Bank error 7200

Outstanding payment 900

Balance as per cashbook 47 955
 HOMEWORK QUESTIONS

QUESTION 1

Your Trust cashbook balance on the 30th of June 2022 reflected a favorable balance
of R90 633. The bank statement on the same date reflected a favorable balance of
R83 282. A comparison of the cashbook and the bank statement reveals the following:

1. An EFT payment, valued at R500, scheduled for the 5th August 2022,
appears in the business cash book.
2. A payment of R1205 was incorrectly recorded in the cash book at R1250.
3. A cash payment of R 8 639 appears in the cash book, but not in the bank
statement.
4. An EFT payment for rent valued at R2929, scheduled for September 2022
appears in the cashbook.
5. Client Z who was dissatisfied with your service, reversed his payment of
R2186.
6. An EFT that was transacted in a business account is paid from a trust
account in the amount of R850.00
7. You receive interest of R200.00 on favorable balance.
Prepare the following:
i. A supplementary cashbook for June 2022.
ii. A bank reconciliation as at 30th June 2022.

Supplementary TCB of June 2022

Balance 90 633 Practice Error 1205

Scheduled payment 1150 Reversed payment 2186

Practice Error 1250 Balance carried over 92 771

Scheduled payment 2929
Interest received 200
96 162 96 162

Balance brought down 92771

 Bank reconciliation statement as of 30 June 2022
Balance 82 282

Outstanding Balance 8639

Bank error 850

Balance as per
cashbook 92771
 QUESTION 2

Your business cashbook on the 30th of July 2023 reflects an overdraft balance of R
64 722. The bank statement balance on the same date shows a negative balance of
R 81 086. A comparison of the cashbook and the bank statement reveals the following:
1. A reversed payment from a client, of R 8 388, does not reflect in the cashbook.
2. Bank charges of R 1 809 have not been entered in the cashbook.
3. Interest of R 713 on the overdraft has not been entered in the cashbook.
4. An EFT transfer from a client in payment of your fee account of R 7 980 has not
been entered in the cashbook.
5. The bank incorrectly debited your account with R 2 169.
6. A payment authorized from your trust banking account of R 7 301 has been
incorrectly paid by the bank from your business account.
7. A deposit of R 5 317 has been incorrectly recorded in your cashbook as R
5 173.
8. Future-dated payments totaling R 6 432 appear only in your cashbook, and not
in the bank statement.
9. A deposit of R 10 000 is not reflected in the bank statement.
10. A payment of R 2 930 has been incorrectly recorded in the cashbook as R
2 390.

Prepare the following:

i. A supplementary cashbook for July 2023.
ii. A bank reconciliation as at 30th July 2023.

Supplementary BCB of July 2023

EFT 7980 Balance 64722

Practice error 5317 Reversed payment 8388

Scheduled payment 6437 Bank charges 1809

Practice error 2390 Interest charged 713

Practice error 5173
Practice error 2930

Balance carried over 61 616

83 735 83 735

Balance brought down 61 616

 Bank reconciliation statement as at 30th of July 2023
Balance 81086
Bank error 2 169

Bank error 7301

10 000

Balance as per cashbook 61 616

NOTE THIS ON THE FOLLOWING 3 QUESTIONS
• You must compare number 1 with number 3.
• You must compare number 2 with number 4.
• You must compare number 5 with number 6.
• You must compare number 6 with number 3.
• Then you should scratch the amounts that appear both on the Cashbook and
the bank statement, if they do not appear simultaneously on the Cashbook
and the bank statement do not scratch them yet as those are the amounts
that you will enter into the Supplementary Cashbook or Bank reconciliation
statement, (in other words the amounts you will deal with).
• Hint, always scratch that amount you are done dealing with it so that it doesn't
confuse you.
• If there is a payment on the credit side of your Cashbook which is not
reflecting on your Banking statement, it is a scheduled payment.
• If there is a payment on the debit side of your Cashbook which is not
reflecting on your Banking statement, it is an outstanding deposit.
• RD is regarded as a reverse payment.
• The last amount is the balance (opening amount)
 Supplementary TCB of June 2022
Balance 90 633 Practice Error 1205

Scheduled payment 2929 Reverse Payment 2186

Practice Error 1250 Balance carried over 91 921

Scheduled Payment 500
95 312 95 312

Balance brought down 91 921

Bank reconciliation statement as of 30 June 2022

Balance 83 282

Outstanding deposit 8639

Balance as per cashbook 91 921
 Supplementary TCB of June 2022
Practice error 1895 Balance 22 153

Scheduled Payment 110 Practice Error

Practice Error 3333 Practice Error

Direct Deposit 5000 Interest charged 1075
Balance carried over 23 177 Reverse Payment 5000
33 455 33 455

Balance brought down 23 177

Bank reconciliation statement as of 30 June 2022

Balance 51 348

Outstanding deposit 1031

Bank error 27 200

Balance as per cashbook 23 177
ANSWER
BOOKS OF PRIME ENTRY
N.B
Always check if a client has money in trust account to avoid entering wrong amount
in the Trust or business cashbook.
 QUESTION 1

During the course of your practice, the following transactions take place:
1. You receive R 30 000 from Simmons to be held in trust pending the happening
of a future event.
2. Simmons instructs you later to buy shares from Nets Inc. worth R 20 000.
3. You receive R 250 000 from Bridges, being the deposit for the purchase price
of an apartment which he is in the process buying.
4. You receive a further EFT payment of R 15 000 from Bridges, being the pro
forma costs.
5. The bank informs you that the R 15 000 received from Bridges has been
reversed.
6. Bridges later pays the R 15 000 in cash.
7. You receive amounts totaling R 300 000 from a variety of clients.
8. The municipality sends you a bill for water of R 1 500, which you pay.
9. Simmons later instructs you to sell the shares you have brought. The proceeds
from the sale are R 40 000.
You are required to:
Record the above transactions in your cashbooks and ledger accounts.
Trust Cashbook
Simmons 30 000 Simmons/shares 20 000
Bridges 250 000 Bridges reversed 15 000
Bridges 15 000 Balance carried over 615 000
Bridges 15 000
Various clients 300 000
Simmons 40 000
650 000 650 000

Business Cashbook
Balance carried over 1500 Water 1500
1500 1500

Water (Cashbook)
Business cashbook 1500 Balance carried over 1500
1500 1500

Simmons (in Trust)

Trust Cashbook 20 000 Trust Cashbook 30 000
Balance carried over 50 000 Trust Cashbook 40 000
70 000 70 000

Bridges (In trust)

Trust Cashbook 15 000 Trust Cashbook 250 000
Balance carried over 265 000 Trust Cashbook 15 000
Trust Cashbook 15 000
280 000 280 000

Various Clients (In trust)

Balance carried over 300 000 Trust Cashbook 300 000
300 000 300 000
QUESTION 2

During the course of your practice, the following transactions take place:
1. You receive a payment of R 200 000 from client Jimmy, pending the happening
of a future event.
2. You receive R 30 000 from Tyler, being the full settlement of his account.
3. You receive multiple deposits from unknown clients, totaling R 80 000.
4. You pay the tracing agent R 500 on behalf of your client Kyle.
5. You pay Toyota R 2000, being the service amount for the firm’s vehicle.
6. Jimmy instructs you to withdraw R 20 000 to pay counsel.
7. You purchased textbooks for the firm worth R 5000 from Lexis Nexis.
8. You pay your candidate attorney’s salary of R 4 000.
9. You pay the firm’s monthly rent of R 14 000.
You are required to:
Record the above transactions in your cashbooks and ledger accounts.
Trust Cashbook
Jimmy 200 000 Jimmy paid counsel 20 000
Various clients 80 000 Balance carried over 260 000
280 000 280 000

Business Cashbook
Tyler 30 000 Kyle payment to racing agent 500
Toyota 2000
Purchased textbook 5000
Salary 4000
Rent 14 000
Balance carried over 4 500
30 000 30 000

Tyler Cashbook
Balance carried over 30 000 Business Cashbook 30 000
30 000 30 000

Kyle Cashbook
Business Cashbook 500 Balance carried over 500
500 500

Toyota
Business Cashbook 2000 Balance carried over 2000
2000 2000

Textbooks
Business Cashbook 5000 Balance carried over 5000
5000 5000
 Salary
Business Cashbook Balance carried over 4000
4000 4000

Rent
Business Cashbook 14 000 Balance carried over 14 000
14 000 14 000

Jimmy (in Trust)

Jimmy 20 000 Trust Cashbook 200 000
Balance carried over 180 000
200 000 200 000

Various clients (In Trust)

Balance carried over 80 000 Trust Cashbook 80 000
80 000 80 000