Double-entry bookkeeping system
Encyclopedia
A double-entry bookkeeping
system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger
accounts.
The name derives from the fact that financial information used to be recorded using pen and ink in paper books – hence "bookkeeping" (whereas now it's recorded mainly in computer systems) and that these books were called journals and ledgers (hence nominal ledger, etc.) – and that each transaction was entered twice (hence "double-entry"), with one side of the transaction being called a debit
and the other a credit
.
It was first codified in the 15th century by Luca Pacioli
. In deciding which account has to be debited and which account has to be credited, the golden rules of accounting are used. This is also accomplished using the accounting equation
: Equity
= Asset
s - Liabilities. The accounting equation serves as an error detection tool. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. It follows that the sum of debits and the sum of the credits must be equal in value.
Double-entry bookkeeping is not a guarantee that no errors have been made – for example, the wrong ledger
account may have been debited or credited, or the entries completely reversed.
. The rules for formulating accounting entries are known as "Golden Rules of Accounting". The accounting entries are recorded in the "Books of Accounts". Regardless of which accounts and how many are impacted by a given transaction, the fundamental accounting equation A = L + OE will hold.
, a Florentine merchant at the end of the 13th century. Some sources suggest that Giovanni di Bicci de' Medici
introduced this method for the Medici bank
in the 14th century. By the end of the 15th century, the merchant venturers of Venice
used this system widely. Luca Pacioli
, a Franciscan friar and collaborator of Leonardo da Vinci
, first codified the system in a mathematics
textbook
of 1494.Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it. There is however controversy among scholars lately that Benedikt Kotruljević wrote the first manual on a double-entry bookkeeping system in his 1458 treatise Della mercatura e del mercante perfetto
.
If there is an increase or decrease in one account, there will be equal decrease or increase in another account. There may be equal increases to both accounts, depending on what kind of accounts they are. There may also be equal decreases to both accounts. Accordingly, the following rules of debit and credit in respect to the various categories of accounts can be obtained. The rules may be summarised as below:
is recorded in at least two different nominal ledger accounts within the financial accounting system, so that the total debits equals the total credits in the General Ledger, i.e. the accounts balance. This is a partial check that each and every transaction has been correctly recorded. The transaction is recorded as a "debit entry" (Dr.) in one account, and a "credit entry" (Cr.) in a second account. The debit entry will be recorded on the debit side (left-hand side) of a General ledger and the credit entry will be recorded on the credit side (right-hand side) of a General ledger account. If the total of the entries on the debit side of one account is greater than the total on the credit side of the same nominal account, that account is said to have a debit balance.
Double entry is used only in nominal ledgers. It is not used in daybooks (journals), which normally do not form part of the nominal ledger system. The information from the daybooks will be used in the nominal ledger and it is the nominal ledgers that will ensure the integrity of the resulting financial information created from the daybooks (provided that the information recorded in the daybooks is correct).
The reason for this is to limit the number of entries in the nominal ledger: entries in the daybooks can be totalled before they are entered in the nominal ledger. If there are only a relatively small number of transactions it may be simpler instead to treat the daybooks as an integral part of the nominal ledger and thus of the double-entry system.
However as can be seen from the examples of daybooks shown below, it is still necessary to check, within each daybook, that the postings from the daybook balance.
The double entry system uses nominal ledger accounts. From these nominal ledger accounts a trial balance
can be created. The trial balance lists all the nominal ledger account balances. The list is split into two columns, with debit balances placed in the left hand column and credit balances placed in the right hand column. Another column will contain the name of the nominal ledger account describing what each value is for. The total of the debit column must equal the total of the credit column.
. If revenue equals expenses, the following (basic) equation must be true:
For the accounts to remain in balance, a change in one account must be matched with a change in another account. These changes are made by debits and credits
to the accounts. Note that the usage of these terms in accounting is not identical to their everyday usage. Whether one uses a debit or credit to increase or decrease an account depends on the normal balance of the account. Assets, Expenses, and Drawings accounts (on the left side of the equation) have a normal balance of debit. Liability, Revenue, and Capital accounts (on the right side of the equation) have a normal balance of credit. On a general ledger
, debits are recorded on the left side and credits on the right side for each account. Since the accounts must always balance, for each transaction there will be a debit made to one or several accounts and a credit made to one or several accounts. The sum of all debits made in any transaction must equal the sum of all credits made. After a series of transactions, therefore, the sum of all the accounts with a debit balance will equal the sum of all the accounts with a credit balance.
Debits and credits are numbers recorded as follows:
Books of prime entry (Books of original entry)
The books of prime entry are where transactions are first recorded. They are not part of the Double-entry system.
Ledger Cards
Each individual line is posted as follows:
From example above:
The totals of each column are posted as follows:
Double-entry has been observed because Dr = 2600 and Cr = 2600.
Keys: PI = Purchase Invoice, BP = Bank Payment
Each individual line is posted as follows:
From example above:
The totals of each column are posted as follows:
Double-entry has been observed because Dr = 2300 and Cr = 2300.
The daybooks are the key documents (books) to the double entry system. From these daybooks we create the ledger accounts. Each transaction will be recorded in at least two ledger accounts.
Each individual line is posted as follows:
From example above:
The totals of each column are posted as follows:
Double-entry has been observed because Dr = 5700 and Cr = 5700.
Customer Ledger cards are not part of the Double-entry system. They are for memorandum purposes only.
They allow you to know the total amount an individual customer owes you.
General (nominal) ledger
The customers ledger cards shows the breakdown of how the trade debtors control a/c is made up. The trade debtors control a/c is the total of outstanding debtors and the customer ledger cards shows the amount due for each individual customer. The total of each individual customer account added together should equal the total in the trade debtors control a/c.
The supplier ledger cards shows the breakdown of how the trade creditors control a/c is made up. The trade creditors control a/c is the total of outstanding creditors and the suppliers ledger cards shows the amount due for each individual supplier. The total of each individual supplier account added together should equal the total in the trade creditors control a/c.
Each Bank a/c shows all the money in and out through a bank. If you have more than one bank account for your company you will have to maintain separate bank account ledgers in order to complete bank reconciliation statements and be able to see how much is left in each account.
The individual customer accounts are not to be listed in the trial balance, as the Trade debtors control a/c is the summary of each individual customer a/c.
The individual supplier accounts are not to be listed in the trial balance, as the Trade creditors control a/c is the summary of each individual supplier a/c.
Important note: this example is designed to show double entry. There are methods of creating a trial balance that significantly reduce the time it takes to record entries in the general ledger and trial balance.
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually...
system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger
Ledger
A ledger is the principal book or computer file for recording and totaling monetary transactions by account, with debits and credits in separate columns and a beginning balance and ending balance for each account. The ledger is a permanent summary of all amounts entered in supporting journals which...
accounts.
The name derives from the fact that financial information used to be recorded using pen and ink in paper books – hence "bookkeeping" (whereas now it's recorded mainly in computer systems) and that these books were called journals and ledgers (hence nominal ledger, etc.) – and that each transaction was entered twice (hence "double-entry"), with one side of the transaction being called a debit
Debits and credits
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
and the other a credit
Debits and credits
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
.
It was first codified in the 15th century by Luca Pacioli
Luca Pacioli
Fra Luca Bartolomeo de Pacioli was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and seminal contributor to the field now known as accounting...
. In deciding which account has to be debited and which account has to be credited, the golden rules of accounting are used. This is also accomplished using the accounting equation
Accounting equation
The basic accounting equation' is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.In a corporation, capital represents the stockholders' equity.-In practice:...
: Equity
Equity (finance)
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
= Asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s - Liabilities. The accounting equation serves as an error detection tool. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. It follows that the sum of debits and the sum of the credits must be equal in value.
Double-entry bookkeeping is not a guarantee that no errors have been made – for example, the wrong ledger
Ledger
A ledger is the principal book or computer file for recording and totaling monetary transactions by account, with debits and credits in separate columns and a beginning balance and ending balance for each account. The ledger is a permanent summary of all amounts entered in supporting journals which...
account may have been debited or credited, or the entries completely reversed.
Accounting entries
In the double-entry accounting system, each accounting entry records related pairs of financial transactions for asset, liability, income, expense, or capital accounts. Recording of a debit amount to one account and an equal credit amount to another account results in total debits being equal to total credits for all accounts in the general ledger. If the accounting entries are recorded without error, the aggregate balance of all accounts having positive balances will be equal to the aggregate balance of all accounts having negative balances. Accounting entries that debit and credit related accounts typically include the same date and identifying code in both accounts, so that in case of error, each debit and credit can be traced back to a journal and transaction source document, thus preserving an audit trailAudit trail
Audit trail is a sequence of steps supported by proof documenting the real processing of a transaction flow through an organization, a process or a system.....
. The rules for formulating accounting entries are known as "Golden Rules of Accounting". The accounting entries are recorded in the "Books of Accounts". Regardless of which accounts and how many are impacted by a given transaction, the fundamental accounting equation A = L + OE will hold.
History
The earliest extant records that follow the modern double-entry form are those of Amatino ManucciAmatino Manucci
Amatino Manucci was the inventor of double-entry bookkeeping.Manucci was a partner in Giovanni Farolfi & Company, a merchant partnership based in Florence. Financial records that he kept for the firm's branch in Salon, Provence, survive from 1299-1300. Although these records are incomplete, they...
, a Florentine merchant at the end of the 13th century. Some sources suggest that Giovanni di Bicci de' Medici
Giovanni di Bicci de' Medici
Giovanni di Bicci de' Medici was an Italian banker, the first historically relevant member of Medici family of Florence, and the founder of the Medici bank...
introduced this method for the Medici bank
Medici bank
The Medici Bank was a financial institution created by the Medici family in Italy during the 15th century. It was the largest and most respected bank in Europe during its prime. There are some estimates that the Medici family was, for a period of time, the wealthiest family in Europe...
in the 14th century. By the end of the 15th century, the merchant venturers of Venice
Venice
Venice is a city in northern Italy which is renowned for the beauty of its setting, its architecture and its artworks. It is the capital of the Veneto region...
used this system widely. Luca Pacioli
Luca Pacioli
Fra Luca Bartolomeo de Pacioli was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and seminal contributor to the field now known as accounting...
, a Franciscan friar and collaborator of Leonardo da Vinci
Leonardo da Vinci
Leonardo di ser Piero da Vinci was an Italian Renaissance polymath: painter, sculptor, architect, musician, scientist, mathematician, engineer, inventor, anatomist, geologist, cartographer, botanist and writer whose genius, perhaps more than that of any other figure, epitomized the Renaissance...
, first codified the system in a mathematics
Mathematics
Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...
textbook
Textbook
A textbook or coursebook is a manual of instruction in any branch of study. Textbooks are produced according to the demands of educational institutions...
of 1494.Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it. There is however controversy among scholars lately that Benedikt Kotruljević wrote the first manual on a double-entry bookkeeping system in his 1458 treatise Della mercatura e del mercante perfetto
Della mercatura e del mercante perfetto
Della mercatura e del mercante perfetto written by Benedikt Kotruljević around 1400 was the first bookkeeping manuscript and trade manual. It also goes by the names Of commerce and the perfect merchant, On merchantry and the perfect merchant and On trade and the perfect dealer.- History :Several...
.
Approaches
There are two different approaches to the double entry system of bookkeeping. They are Traditional Approach and Accounting Equation Approach. Irrespective of the approach used, the effect on the books of accounts remain the same, with two aspects (debit and credit) in each of the transactions.Traditional approach
This approach is used in Britain in which accounts are classified as real, personal, and nominal accounts. Real accounts are assets. Personal accounts are liabilities and owners' equity and represent people and entities that have invested in the business. Nominal accounts are revenue, expenses, gains, and losses. Transactions are entered in the books of accounts by applying the following golden rules of accounting:- Personal account: Debit the receiver and credit the giver
- Real account: Debit what comes in and credit what goes out
- Nominal account: Debit all expenses & losses and credit all incomes & gains
Accounting equation approach
This approach is also called as the American approach. Under this approach transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital. The accounting equation is a statement of equality between the debits and the credits. The rules of debit and credit depend on the nature of an account. For the purpose of the accounting equation approach, all the accounts are classified into the following five types: assets, liabilities, income/revenues, expenses, or capital gains/losses.If there is an increase or decrease in one account, there will be equal decrease or increase in another account. There may be equal increases to both accounts, depending on what kind of accounts they are. There may also be equal decreases to both accounts. Accordingly, the following rules of debit and credit in respect to the various categories of accounts can be obtained. The rules may be summarised as below:
- Assets Accounts: debit increases in assets and credit decreases in assets
- Capital Account: credit increases in capital and debit decreases in capital
- Liabilities Accounts: credit increases in liabilities and debit decreases in liabilities
- Revenues or Incomes Accounts: credits increases in incomes and gains and debit decreases in incomes and gains
- Expenses or Losses Accounts: debit increases in expenses and losses and credit decreases in expenses and losses
Books of accounts
Each financial transactionFinancial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
is recorded in at least two different nominal ledger accounts within the financial accounting system, so that the total debits equals the total credits in the General Ledger, i.e. the accounts balance. This is a partial check that each and every transaction has been correctly recorded. The transaction is recorded as a "debit entry" (Dr.) in one account, and a "credit entry" (Cr.) in a second account. The debit entry will be recorded on the debit side (left-hand side) of a General ledger and the credit entry will be recorded on the credit side (right-hand side) of a General ledger account. If the total of the entries on the debit side of one account is greater than the total on the credit side of the same nominal account, that account is said to have a debit balance.
Double entry is used only in nominal ledgers. It is not used in daybooks (journals), which normally do not form part of the nominal ledger system. The information from the daybooks will be used in the nominal ledger and it is the nominal ledgers that will ensure the integrity of the resulting financial information created from the daybooks (provided that the information recorded in the daybooks is correct).
The reason for this is to limit the number of entries in the nominal ledger: entries in the daybooks can be totalled before they are entered in the nominal ledger. If there are only a relatively small number of transactions it may be simpler instead to treat the daybooks as an integral part of the nominal ledger and thus of the double-entry system.
However as can be seen from the examples of daybooks shown below, it is still necessary to check, within each daybook, that the postings from the daybook balance.
The double entry system uses nominal ledger accounts. From these nominal ledger accounts a trial balance
Trial balance
A trial balance is a list of all the nominal ledger accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit value...
can be created. The trial balance lists all the nominal ledger account balances. The list is split into two columns, with debit balances placed in the left hand column and credit balances placed in the right hand column. Another column will contain the name of the nominal ledger account describing what each value is for. The total of the debit column must equal the total of the credit column.
Debits and credits
Double-entry bookkeeping is governed by the accounting equationAccounting equation
The basic accounting equation' is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.In a corporation, capital represents the stockholders' equity.-In practice:...
. If revenue equals expenses, the following (basic) equation must be true:
- assets = liabilities + equity
For the accounts to remain in balance, a change in one account must be matched with a change in another account. These changes are made by debits and credits
Debits and credits
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
to the accounts. Note that the usage of these terms in accounting is not identical to their everyday usage. Whether one uses a debit or credit to increase or decrease an account depends on the normal balance of the account. Assets, Expenses, and Drawings accounts (on the left side of the equation) have a normal balance of debit. Liability, Revenue, and Capital accounts (on the right side of the equation) have a normal balance of credit. On a general ledger
General ledger
The main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger is divided into debits and credits sections. The left hand...
, debits are recorded on the left side and credits on the right side for each account. Since the accounts must always balance, for each transaction there will be a debit made to one or several accounts and a credit made to one or several accounts. The sum of all debits made in any transaction must equal the sum of all credits made. After a series of transactions, therefore, the sum of all the accounts with a debit balance will equal the sum of all the accounts with a credit balance.
Debits and credits are numbers recorded as follows:
- Debits are recorded on the left side of a T account in a ledger. Debits increase balances in asset accounts and expense accounts and decrease balances in liability accounts, revenue accounts, and capital accounts.
- Credits are recorded on the right side of a T account in a ledger. Credits increase balances in liability accounts, revenue accounts, and capital accounts, and decrease balances in asset accounts and expense accounts.
- Debit accounts are asset and expense accounts that usually have debit balances, i.e. the total debits usually exceeds the total credits in each debit account.
- Credit accounts are revenue (income, gains) accounts and liability accounts that usually have credit balances.
| | Debit | | Credit | |||
|---|---|---|---|---|
| Asset | Increase | Decrease | ||
| Liability | Decrease | Increase | ||
| Income (revenue) | Decrease | Increase | ||
| Expense | Increase | Decrease | ||
| Capital | Decrease | Increase | ||
Double entry example
In this example the following will be used:Books of prime entry (Books of original entry)
- Sales Invoice Daybook (records customer invoices)
- Bank Receipts Daybook (records customer & non customer receipts)
- Cash book
- Return inwards day book
- Return outwards day book
- Purchase Invoice Daybook (records supplier invoices)
- Bank Payments Daybook (records supplier & non supplier payments)
The books of prime entry are where transactions are first recorded. They are not part of the Double-entry system.
Ledger Cards
- Customer Ledger Cards
- Supplier Ledger Cards
- General Ledger (Nominal Ledger)
- Bank Account Ledger
- Trade Creditors Ledger
- Trade Debtors Ledger
Purchase invoice daybook
| Date | Supplier Name | Reference | Amount | Electricity | Widgets |
|---|---|---|---|---|---|
| 10 July 2006 | Electricity Company | PI1 | 1000 | 1000 | |
| 12 July 2006 | Widget Company | PI2 | 1600 | 1600 | |
| ------- | ------- | ||||
| Total | 2600 | 1000 | 1600 | ||
| Credit | Debit | Debit | |||
| Trade | Electricity | Widgets | |||
| control a/c | a/c | a/c |
Each individual line is posted as follows:
- The amount value is posted as a credit to the individual supplier's ledger a/c
- The analysis amount is posted as a debit to the relevant general ledger a/c
From example above:
- Line 1 – Amount value 1000 is posted as a credit to the Supplier's ledger a/c ELE01-Electricity Company
- Line 2 – Amount value 1600 is posted as a credit to the Supplier's ledger a/c WID01-Widget Company
The totals of each column are posted as follows:
- Amount total value 2600 posted as a credit to the Trade creditors control a/c
- Electricity total value 1000 posted as a debit to the Electricity General Ledger a/c
- Widget total value 1600 posted as a debit to the Widgets General Ledger a/c
Double-entry has been observed because Dr = 2600 and Cr = 2600.
Bank payments daybook
The payments book is not part of the double-entry system.| Date | Supplier Name | Reference | Amount | Suppliers | Wages |
|---|---|---|---|---|---|
| 17 July 2006 | Electricity Company | BP701 | 1000 | 1000 | |
| 19 July 2006 | Widget Company | BP702 | 900 | 900 | |
| 28 July 2006 | Owner's Wages | BP703 | 400 | 400 | |
| Total | 2300 | 1900 | 400 | ||
| Credit | Debit | Debit | |||
| Bank | Trade | Wages | |||
| Account | Creditors | control a/c | |||
| control a/c |
Keys: PI = Purchase Invoice, BP = Bank Payment
Each individual line is posted as follows:
- The amount value is posted as a debit to the individual supplier's ledger a/c.
- The analysis amount is posted as a credit to the relevant general ledger a/c.
From example above:
- Line 1 – Amount value 1000 is posted as a debit to the Supplier's ledger a/c ELE01-Electricity Company.
- Line 2 – Amount value 900 is posted as a debit to the Supplier's ledger a/c WID01-Widget Company.
The totals of each column are posted as follows:
- Amount total value 2300 posted as a credit to the Bank Account.
- Trade Creditors total value 1900 posted as a debit to the Trade creditors control a/c.
- Other total value 400 posted as a debit to the Wages control a/c.
Double-entry has been observed because Dr = 2300 and Cr = 2300.
The daybooks are the key documents (books) to the double entry system. From these daybooks we create the ledger accounts. Each transaction will be recorded in at least two ledger accounts.
Supplier ledger cards
| A/c Code: ELE01 – Electricity Company | |||||||
|---|---|---|---|---|---|---|---|
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 17 July 2006 | Bank Payments Daybook | BP701 | 1000 | 10 July 2006 | Invoice | PI1 | 1000 |
| 31 July 2006 | Balance c/d | 0 | |||||
| ------- | |||||||
| 1000 | 1000 | ||||||
| |
|||||||
| 1 August 2006 | Balance b/d | 0 | |||||
| A/c Code: WID01 – Widget Company | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 19 July 2006 | Bank Payments Daybook | BP702 | 900 | 12 July 2006 | Invoice | PI2 | 1600 |
| 31 July 2006 | Balance c/d | 700 | |||||
| ------- | |||||||
| 1600 | 1600 | ||||||
| |
|||||||
| 1 August 2006 | Balance b/d | 700 | |||||
Sales daybook
| Date | Customer Name | Reference | Amount | Parts | Service |
|---|---|---|---|---|---|
| 2 July 2006 | JJ Manufacturing | SI1 | 2500 | 2500 | |
| 29 July 2006 | JJ Manufacturing | SI2 | 3200 | 3200 | |
| ------- | ------- | ||||
| Total | 5700 | 2500 | 3200 | ||
| Debit | Credit | Credit | |||
| Trade | Sales | Sales | |||
| debtors | Parts | Service | |||
| control a/c | a/c | a/c |
Each individual line is posted as follows:
- The amount value is posted as a debit to the individual customer's ledger a/c.
- The analysis amount is posted as a credit to the relevant general ledger a/c.
From example above:
- Line 1 – Amount value 2500 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing.
- Line 2 – Amount value 3200 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing.
The totals of each column are posted as follows:
- Amount total value 5700 posted as a debit to the Trade debtors control a/c.
- Sales-parts total value 2500 posted as a credit to the Sales parts a/c.
- Sales-service total value 3200 posted as a credit to the Sales service a/c.
Double-entry has been observed because Dr = 5700 and Cr = 5700.
Customer ledger cards
Customer Ledger cards are not part of the Double-entry system. They are for memorandum purposes only.
They allow you to know the total amount an individual customer owes you.
| A/c Code: JJM01 – JJ Manufacturing | |||||||
|---|---|---|---|---|---|---|---|
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 2 July 2006 | Sales invoice daybook | SI1 | 2500 | 20 July 2006 | Bank receipts daybook | BR1 | 2500 |
| 29 July 2006 | Sales invoice daybook | SI2 | 3200 | 31 July 2006 | balance c/d | 3200 | |
| ------- | |||||||
| 5700 | 5700 | ||||||
| 1 August 2006 | Balance b/d | 3200 | |||||
General (nominal) ledger
| Sales parts | |||||||
|---|---|---|---|---|---|---|---|
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 31 July 2006 | Balance | c/d | 2500 | 2 July 2006 | Sales invoice daybook | SDB | 2500 |
| ------- | |||||||
| 2500 | 2500 | ||||||
| 1 August 2006 | Balance | b/d | 2500 | ||||
| Sales service | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 31 May 2006 | Balance | c/d | 3200 | 29 July 2006 | Sales invoice daybook | SDB | 3200 |
| ------- | |||||||
| 3200 | 3200 | ||||||
| 1 June 2010 | Balance | b/d | 3200 | ||||
| Electricity | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 10 May 2010 | Electricity Co. | PDB | 1000 | 30 May 2010 | Balance | c/d | 1000 |
| ------- | |||||||
| 1000 | 1000 | ||||||
| 1 June 2010 | Balance | b/d | 1000 | ||||
| Water | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 12 May 2010 | water Co. | Pdb | 1600 | 31 May 2010 | Balance | c/d | 1600 |
| ------- | |||||||
| 1600 | 1600 | ||||||
| 1 August 2010 | Balance | b/d | 1600 | ||||
| Other a/c | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 28 July 2006 | Owner's Wages | BPDB | 400 | 31 July 2006 | Balance | c/d | 400 |
| ------- | |||||||
| 400 | 400 | ||||||
| 1 August 2006 | Balance | b/d | 400 | ||||
| Bank Control A/c | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 31 July 2006 | Bank receipts daybook | BRDB | 2500 | 31 July 2006 | Bank payments daybook | BPDB | 2300 |
| 31 July 2006 | Balance | c/d | 200 | ||||
| ------- | |||||||
| 2500 | 2500 | ||||||
| 1 August 2006 | Balance | b/d | 200 | ||||
| Trade Debtors Control A/c | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 1 July 2006 | Balance | b/d | 0 | 31 July 2006 | Bank receipts daybook | BRDB | 2500 |
| 31 July 2006 | Sales Invoice Daybook | SDB | 5700 | 31 July 2006 | Balance | c/d | 3200 |
| ------- | |||||||
| 5700 | 5700 | ||||||
| 1 August 2006 | Balance | b/d | 3200 | ||||
| Trade Creditors Control A/c | |||||||
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 31 July 2006 | Bank Payments Daybook | BPDB | 1900 | 1 July 2006 | Balance | b/d | 0 |
| 31 July 2006 | Balance | c/d | 700 | 31 July 2006 | Purchase Daybook | PDB | 2600 |
| ------- | |||||||
| 2600 | 2600 | ||||||
| 1 August 2006 | Balance | b/d | 700 | ||||
The customers ledger cards shows the breakdown of how the trade debtors control a/c is made up. The trade debtors control a/c is the total of outstanding debtors and the customer ledger cards shows the amount due for each individual customer. The total of each individual customer account added together should equal the total in the trade debtors control a/c.
The supplier ledger cards shows the breakdown of how the trade creditors control a/c is made up. The trade creditors control a/c is the total of outstanding creditors and the suppliers ledger cards shows the amount due for each individual supplier. The total of each individual supplier account added together should equal the total in the trade creditors control a/c.
Each Bank a/c shows all the money in and out through a bank. If you have more than one bank account for your company you will have to maintain separate bank account ledgers in order to complete bank reconciliation statements and be able to see how much is left in each account.
Bank account
| Bank A/c | |||||||
|---|---|---|---|---|---|---|---|
| Date | Details | Reference | Amount | Date | Details | Reference | Amount |
| 20 July 2006 | Bank Receipts Day Book | BR1 | 2500 | 17 July 2006 | Bank Payments Daybook | BP701 | 1000 |
| 19 July 2006 | Bank Payments Daybook | BP702 | 900 | ||||
| 28 July 2006 | Bank Payments Daybook | BP703 | 400 | ||||
| 31 July 2006 | Balance | c/d | 200 | ||||
| ------- | |||||||
| 2500 | 2500 | ||||||
| 1 August 2006 | Balance | b/d | 200 | ||||
Unadjusted trial balance
| Trial balance as at 31 July 2006 | ||
|---|---|---|
| A/c description | Debit | Credit |
| Sales-parts | 2500 | |
| Sales-service | 3200 | |
| Widgets | 1600 | |
| Electricity | 1000 | |
| Other | 400 | |
| Bank | 200 | |
| Trade Debtors Control A/c | 3200 | |
| Trade Creditors Control A/c | 700 | |
| 6400 | 6400 | |
| Both sides must have the same overall total | ||
| Debits = Credits. | ||
The individual customer accounts are not to be listed in the trial balance, as the Trade debtors control a/c is the summary of each individual customer a/c.
The individual supplier accounts are not to be listed in the trial balance, as the Trade creditors control a/c is the summary of each individual supplier a/c.
Important note: this example is designed to show double entry. There are methods of creating a trial balance that significantly reduce the time it takes to record entries in the general ledger and trial balance.
Profit-and-loss statement and balance sheet
| for the month ending 31 July 2006 | ||
|---|---|---|
| Dr | ||
| x | Sales | |
| x | Sales-parts | 2500 |
| x | Sales-service | 3200 |
| x | ||
| x | 5700 | |
| x | Widgets | 1600 |
| x | ||
| x | Gross Profit | 4100 |
| x | Less expenses | |
| x | Electricity | 1000 |
| x | Other | 400 |
| x | ||
| x | 1400 | |
| x | ||
| x | Net Profit | 2700 |
| x | ||
| as at 31 July 2006 | |||
|---|---|---|---|
| Dr | |||
| x | Current Assets | ||
| x | Bank A/c | 200 | |
| x | Trade Debtors | 3200 | |
| x | |||
| x | 3400 | ||
| x | Current Liabilities | ||
| x | Trade Creditors | 700 | |
| x | |||
| x | 700 | ||
| x | |||
| x | Net Current Assets | 2700 | |
| x | |||
| x | Capital & Reserves | ||
| x | Revenue Reserves a/c | 2700 | |
| x | |||
| x | 2700 | ||
| x | |||
See also
- Nostro and vostro accounts
- Single-entry bookkeeping system
- Momentum accounting and triple-entry bookkeepingMomentum Accounting and Triple-Entry BookkeepingMomentum accounting and triple-entry bookkeeping is an alternative accountancy system developed by Yuji Ijiri and is the title of the 1989 monograph that he wrote. It is hard to imagine alternatives to the universal system of double-entry bookkeeping, but this is one.In regular, double-entry...