The Meaning of Double Entry
Explain the meaning of double entry
Every transaction is recorded once. This is unreliable because:
If an arithmetic mistake is made, it is very difficult to find and correct it
If a transaction is omitted, it is difficult to find it
The sales ledger
The purchases ledger
The general ledger
is a person who owes money to the business, that is a person to whom the business sold goods on credit.
So when the business has a new customer, it will open an account in the sales ledger for that customer.
Is a ledger that records all accounts other than debtors’ and
It is recorded on the left as debit (DR), and on the right as credit (CR).
The bank account gives the benefit, and so is credited 50,000/-
The wages account receives the benefit, and so is debited 50,000/-
ABC Limited has given the benefit, and so is credited 100,000/-
The fixed assets account has received the benefit, and so is debited 100,000/-
In the’ Particular’ column, write the other account involved in the transaction.
Note: Check that for each transaction there are two equal entries, one for debit and one for credit, for instance:
the accounts is the process of balancing the accounts. This involves
determining the totals of the debits and credits, and finding the
difference between the two sides. The difference is the balancing figure, which is placed in the side that is less. This makes the two sides equal.
balance c/d shows the amount that stands on the account on the closing
date. It appears as balance b/d (b/d means brought down) on the opening
date of the next trading period, on the other side of the ledger.
- a lorry bought for cash
- goods sold to Mr. Sabaya for cash
is a statement which shows the balances of accounts extracted from the
ledger. At the end of each trading period, the accounts in the ledger
are closed, that is the balance of each account is determined. These
balances are then shown in the trial balance.
checks the arithmetical accuracy of the ledger. The double entry system
requires posting equal amounts to debits and credits. Therefore the
trial balance is expected to balance if the arithmetic was correct. If
there is a difference in the totals of the debit and credit columns of
the trial balance, then some errors were made.
simplifies the preparation of the final accounts. The trial balance
contains all the accounts extracted from the ledgers. This makes it easy
to post the accounts to the final accounts.
trading and profit and loss A/C is an account that is composed of two
accounts, the trading A/C, and the profit and loss A/C.
the profit and loss A/C, the gross profit and other revenues are
credited to the account while the operating expenses are debited.
following is the trial balance of FMHN Trading Co. as at 31 December
2004. Prepare the trading and profit and loss accounts for the year
are possessions of the business that assist the business in its
operations, and benefit the business for more than one accounting
the balance sheet, useful information concerning the business can be
extracted. The interpretation then depends on the use of the
quick ratio measures the ability of the business to pay current
liabilities out of current assets excluding stock which is considered
- Working capital
- Quick ratio
- Current ratio
Below is a trial balance for Nyati Ltd. The closing stock was 1,
750,000/-, and the van was depreciated at 25%. Set up the trading and
profit and loss account.
- working capital
- current liquidity
- quick liquidity rate