1. Unlocking Financial Accounting Chapter 2 Chapter 2 Recording transactions Learning summary By the end of this chapter you should know: the dual aspect concepts the accounting equation the relationship between the accounting equation and double-entry bookkeeping how to record transactions in the appropriate ledger accounts how to balance off accounts at the end of an accounting period how to prepare a trial balance.

2. Unlocking Financial Accounting Chapter 2 The accounting equation – key points The system that accountants use to record transactions is known as double-entry bookkeeping. Double-entry bookkeeping is based on the dual aspect rule, i.e. a recognition that every transaction has a twofold effect, meaning that each transaction is to be recorded in two locations within the accounting records of the company. assets = liabilities capital = assets – liabilities capital = (beginning capital + contributions – withdrawals) + (revenue – expenses)

3. Unlocking Financial Accounting Chapter 2 T-accounts, debits and credits – key points The left side of an account is always the debit side; the right is always the credit side. For every debit entry there must be a credit entry. Increases in assets are debit entries; increases in liabilities and capital are credit entries. T-account Debit (Dr)Credit (Cr) Increases (value received) Decreases (value released)

4. Unlocking Financial Accounting Chapter 2 The balancing accounts – key points When accounts consist of both debit and credit entries, they should be balanced by adding up the amounts on each side of the account to find the totals. The larger amount is then entered as the total for both the debit and credit sides. For the side that does not add up to the total, the figure that makes it add up should be calculated by deducting the smaller from the larger amount. This is usually abbreviated as balance c/d. Enter the balance brought down (abbreviated as balance b/d) on the opposite side below the total figure.

5. Unlocking Financial Accounting Chapter 2 The trial balance – key points A trial balance is a list of all the balances in the ledger accounts. It does not form part of the double-entry process. The trial balance ensures that for every transaction, a debit recorded in one ledger account has been matched with a credit in another. The total of the debit balances should always equal the total of the credit balances.