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F3 Note Opentuition-17-21
F3 Note Opentuition-17-21
F3 Note Opentuition-17-21
Chapter 3
DOUBLE ENTRY BOOKKEEPING
1. Introduction
In the previous chapter we looked at the fact that every transaction has two effects, and also
looked at the layout of the financial statements.
In order to be able to produce the financial statements at the end of the period, a record needs to
be made of every individual transaction as it occurs. This is known as bookkeeping, and in this
chapter we will look at the standard way in which bookkeeping is done.
The left hand page is always called the debit side, and the right hand page is called the credit side.
If we make an entry on the debit side, we say that we debit the account. If we make an entry on
the credit side, we say that we credit the account.
For every transaction there will be two entries – one on the debit side of an account and one on
the credit side of another account. We call this double entry.
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4. Worked example
We will work through the following entries together (use big t-accounts, because we will do other
things later with the same accounts):
Example 1
The following are the transactions of Kristine’s business during her first month of trading.
Record each transaction in t-accounts.
(a) Kristine starts a business and pays in $5,000 as capital
(b) The business buys a car for $1,000 cash
(c) They buy goods for resale for $500 cash
(d) They buy more goods for resale for $600 on credit from Mr A
(e) They pay rent of $200 cash
(f) They sell half the goods for $800 cash
(g) They sell the remaining goods on credit for $900 to Mrs X
(h) They pay $400 cash on account of the amount owing to Mr A
(i) They receive $500 from Mrs X
(j) Kristine withdraws $100 cash from the business
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Example 2
Go back to the previous example and balance off the accounts.
Example 3
Prepare a Trial Balance from the previous example
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Example 4
For the previous example, open a Statement of Profit or Loss t-account and close off all the
accounts.
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Example 5
For the previous example, prepare a Statement of Financial Position and a Statement of
Profit or Loss
Example 6
Go back to the original t-accounts and finish them by tidying up the owner’s accounts.
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