Accounting is a blend of theory and practice.  double entry is the core operation in accounting. understanding the practice of double entry bookkeeping is the most step for start of accounting.

Double Entry Concept

Double Entry Concept

 

This page illustrates with two practical examples the principles already explained. The first is extremely  straight forward.

Double Entry of Bank Accounts

In the section about single entry bookkeeping the point was made that a birdwatchers’ club might not see the need for double entry records, but let us suppose that a new treasurer has instituted a double entry system and that the  following four events occur on the first day:

• A member pays her annual subscription of £50.

• The club buys a new telescope for £400.

• The treasurer is reimbursed £100 for stamps that he has bought.

• The annual subscription of £75 is paid to The Federation of British Birdwatchers.

Bank Account

Example of Bank account in bookkeeping

You will no doubt have noticed that the debits have received the benefits and that the credits have given the benefits, and also that the total of the debits equals the total of the credits. You may also have noticed that more has gone out of the bank than has been received. Let us hope that the birdwatchers have an agreed overdraft facility or started the period with money in the bank.

Double Entry of Sales

The second example relates to a business and involves purchases and sales made on credit. The accounts reflect the posting for the following transactions.

• A sale of £110 is made for cash which is banked.

• A sale of £4,000 is made on credit to J. K. Patel Ltd.

• A sale of £60 is made on credit to Cohen and Levin Ltd.

• Payment of £3,200 (relating to a previous sale) is received from J. K. Patel Ltd.

• Widgets for resale costing £2,700 are purchased on credit from Widget Supplies Ltd.

• Wages of £6,000 are paid.

• An invoice for £2,000 relating to advertising is received from King Brothers.

 

Double Entry Quiz

1. Does credit give the benefit or receive the benefit?

2. The treasurer of Kidwilton Village Football Club keeps the books using a double
entry system. Write up the accounts to reflect the following transactions:

• Annual subscriptions of £50 are received in cash from each of four members and
the money is banked.

• Rent of £500 is paid to the farmer who owns the football field.

• An invoice from a firm of solicitors (Lafferty and Reed) is received. The amount is £300.

• An invoice from a printer (K. Klaus Ltd) is received. The amount is £170.

• A donation of £5,000 is received from the club’s president. The cheque is banked.

INSTANT TIP: For every debit there must be a credit. If there is not, a mistake has
been made.