1. Double entry accounting
Debit
Credit

2. Needs for accounts
Many transactions occur in all businesses every day and it would be almost impossible to draw up a new balance sheet after every transaction. Therefore, a device called an account is needed (eg. Bank) to record the changes that occur. Account is abbreviated as a/c.
An account is a record where all the changes to a particular item are shown.
Every balance sheet item has an account. All these accounts are kept together in a ledger.
A ledger is a book, set of loose cards or file of all the accounts.
There are 2 common methods of presenting ledger accounts:
T format
Columnar format

3. Ledger Account- T format looks like this:
Debit side
Bank (A)
Credit side
Date
Particular
Amount ($)
2010
1 Jul
Capital (O. Beer)
12 000
Debit side
Capital O. Beer (P)
Credit side
Date
Particular
Amount ($)
2010
1 Jul
Bank
12 000

4. Ledger Account- Columnar format looks like this:
Bank
Date
Particular
Debit ($)
Credit ($)
Balance ($)
2010
Jul 1
Jul 3
Capital
Vehicle
12 000
8 600
3 400
Capital
Date
Particular
Debit ($)
Credit ($)
Balance ($)
2010
Jul 1
Bank
12 000
Vehicles
Date
Particular
Debit ($)
Credit ($)
Balance ($)
2010
Jul 3
Bank
8 600

5. Account rules- nature of accounts
A basic rule of accounting is:
Asset accounts have a debit nature.
Debit is recorded on the left hand side of the T account.
Increases to asset accounts are recorded on the debit side (left).
Decreases to asset accounts are recorded on the opposite side, ie the credit side (right hand side)
Debit is abbreviated as Dr.
Credit is abbreviated as Cr.
Therefore, increases to accounts are recorded on the same side as the nature of the account & decreases to accounts are recorded on the opposite side to the nature of the account

6. Consider these 2 ledger accounts : Transaction 1: On 1 July 2010, the owner Oliver Beer invested $ to start the business. This means that 2 accounts are affected: Bank and Capital. This is known as double entry.
Debit side
Bank (A)
Credit side
Date
Particular
Amount ($)
2010
1 Jul
Capital (O. Beer)
12 000
Notice that for every transaction, the total debit always equals the total credit. This is called ‘Double Entry’ accounting
Capital O. Beer (P)
Date
Particular
Amount ($)
2010
1 Jul
Bank
12 000

7. Consider another transaction: On 3 July 2010, the business bought a vehicle for $ This means that 2 accounts are affected: Bank and Vehicles. Vehicles (A) increases by $8 600 and Bank (A) decreases by $8 600, so we record bank on the credit side and vehicle on the debit side, following the basic accounting rules.
Debit side
Bank (A)
Credit side
Date
Particular
Amount ($)
2010
1 Jul
Capital (O. Beer)
12 000
3 Jul
Vehicle
8 600
There is no need to create another ‘Bank’ a/c, just add the transaction to the existing account.
Debit side
Vehicles (A)
Credit side
Date
Particular
Amount ($)
2010
1 Jul
Bank
8 600
For each transaction, there has to be an affect on the debit side and the credit side for the balance sheet to balance

8. Account rules- nature of accounts
A basic rule of accounting is:
Liability accounts have a credit nature.
Credit is recorded on the right hand side of the T account.
Increases to liability accounts are recorded on the credit side (right).
Decreases to liability accounts are recorded on the opposite side, ie the debit side (left hand side)
Debit is abbreviated as Dr.
Credit is abbreviated as Cr.
Therefore, increases to accounts are recorded on the same side as the nature of the account & decreases to accounts are recorded on the opposite side to the nature of the account

9. Consider another transaction: On 5 July 2010, the business took out a mortgage to purchase premises from Lender Institution for $ This means that 2 accounts are affected: Premises and Mortgage on Premises. Premises (A) increases by $ and Mortgage on Premises (L) increases by $
Debit side
Premises (A)
Credit side
Date
Particular
Amount ($)
2010
Jul 5
Mortgage on Premises
Debit side
Mortgage on Premises (L)
Credit side
Date
Particular
Amount ($)
2010
Jul 5
Premises

10. Account rules- nature of accounts
A basic rule of accounting is:
Owner’s equity has a credit nature.
Credit is recorded on the right hand side of the T account.
Increases to proprietorship is recorded on the credit side (right).
Decreases to proprietorship is recorded on the opposite side, ie the debit side (left hand side)
Debit is abbreviated as Dr.
Credit is abbreviated as Cr.
Therefore, increases to accounts are recorded on the same side as the nature of the account & decreases to accounts are recorded on the opposite side to the nature of the account

11. Consider another transaction: On 8 July 2010, the owner withdrew $1 200 to pay for a holiday with his wife. This means that 2 accounts are affected: Bank and Drawings. Bank (A) decreases by $1 200 and Drawings (-P) increases by $1 200 so we record bank on the credit side and drawings on the debit side, following the basic accounting rules.
Debit side
Bank (A)
Credit side
Date
Particular
Amount ($)
2010
1 Jul
Capital (O. Beer)
12 000
3 Jul
8 Jul
Vehicle
Drawings
8 600
1 200
Debit side
Drawings (-P)
Credit side
Date
Particular
Amount ($)
2010
Jul 8
Bank
1 200

12. Analysing transactions
Every transaction affects two or more accounts. To analyse transactions into their debit or credit elements, complete the following steps by determining:
What ledger accounts are affected by the transactions.
What type of account each of these is (A, L or P).
The nature of account (Dr or Cr?).
Whether the account is increasing or decreasing.
Which side of the ledger account is affected.
Remember: For every transaction, the total debit amounts must equal the total credit amounts. This is called ‘Double Entry’
Debit
Credit

13. Using a table to analyse transactions
Date
Transactions
Accounts
A,L, O/E
Nature
Increase/decrease
Dr/Cr
Amount
2012
Jan 1
Owner introduced $ cash into business
Bank
Capital A
O/E
Debit
Credit
Increase Dr Cr
$45 000 3
Bought vehicle for $ cash
Vehicles
Decrease
$25 000 5
Bought furniture on credit from Woodform for $5 000
Furniture
Creditors L
$5 000 7
Borrowed $ from ABC Bank to help start up the business
Loan (ABC Bank
$75 000 10
Paid Woodform $5 000 cash 12
Bought stock worth $ from XY Suppliers
Stock
$6 500