Basic Book Keeping

AFT 04101

Topic Two: Double Entry Accounting

(Part One)
Facilitator: Mr. Benny Perry & Samson
N. Ndaturu
 Lesson Objectives
By the end of this lesson, you are
expected to be able to:
a. Explain the double entry
bookkeeping system
b. Prepare books of original entry
c. Post accounting information
following the double entry rule
 Introduction
Double entry accounting is also known as double
entry system of book keeping.
Double entry system of book keeping is a system
of recording a business transaction twice.
A business transaction is recorded twice on a T
account.
A T account is a record that tracks financial
activities. It has two sides, a debit side and a
credit side.
A “T” Account
 Types of Accounts
There are three types of accounts. They
types include the following:
1. Real Accounts
2. Personal Accounts
3. Nominal Accounts
 Real Accounts
• A real account is an account that record items
of assets of all kind. They record tangible
assets and intangible assets.
• A golden rule in real accounts is that;
Debit what comes in and credit what goes out.
• Examples of items recorded in these accounts
include purchase of assets such a purchase of
furniture, building, land and other assets.
 Personal Accounts
• Personal accounts are accounts which record
items or transactions involving directly or
indirectly individual, company, or organization
related.
• The golden rule to related to these types of
accounts is:
Debit the receiver and credit the giver
 Nominal Accounts
• Nominal accounts are types of accounts
associated with income, gains, losses or
expenses. At the end, their balances are posted
to the capital account.
• The golden rule to deal with nominal accounts
is:
Debit all expenses and loses, credit all incomes
and gains.
 General Rules of Double Entry
A debit entry represents one of the following:
a. An increase in an asset
b. A decrease in a liability
c. An item of expense
A credit entry represents one of the following:
d. An increase in a liability
e. a decrease in an asset
f. An item of income or revenue
 Books of Original Entry
• A book of original entry is a book in which a
business transaction is recorded first.
• A book of original entry is also known as a
day book or journal or subsidiary book or a
book of prime entry.
• There are six types of books of original entry.
Six Types of Books of Original Entry

The following are the six types of books of

original entry, they include the following:
1. Purchase Journal: It is also known as a
purchase day book. It is used to record all
credit purchases of goods. It is written up
from an invoice.
2. Sales Journal: It is also known as a sales day
book. It is used to record all credit sales of
goods. It is written up from an invoice.
Six Types of Books of Original Entry

3. Sales Return Journal: It is also known as a

return inwards book. It is used to record all
returns inwards. It is written up from copies of
credit notes sent to customers.
4. Purchase Return Journal: It is also known
as returns outwards book. It is used to record
all purchase returns. It is written up from
credit notes received from suppliers.
Six Types of Books of Original Entry
5. Cash Book: It is used to record all receipts and
payments of cash and checks. It is the only book
of original entry that acts as a ledger account.
6. General Journal: It is also known as the journal.
This book is used to record all those items of
transactions that cannot be recorded in any other
book of original entry. This book records
transactions involving correction of errors,
opening entries and purchase of sales of assets on
credit.
1. Purchase Day Book
2. Sales Day Book
3. Sales Return Journal
4. Purchase Return Journal
5. Cash Book
6. General Journal
 Posting Accounting Information
following Double Entry Rule
• Posting accounting information following
double entry rule requires books of final
entry.
• Ledger books are the books of final entry.
• Ledger books contain various accounts to
which entries are made.
• There are three types of ledger books.
 Three Types of Ledger Books
The three types of ledger books are:
1. Purchases Ledger Book: Is a book which contains all
accounts of suppliers.
2. Sales Ledger Books: Is a book which contains all
accounts of customers
3. General Ledger Book: Is a book which contains all the
rest of accounts. It is also known as a nominal ledger.
The accounts in this ledger are assets account, expenses
account, total purchases account, total sales account,
total sales return account and total purchase returns
account.
1. A Purchase Ledger
2. A Sales Ledger
3. General Ledger
Working Examples on Double
Entry Accounting

TOPIC ONE (PART TWO)