BTHM- Double Entry Bookkeeping Financial Accounting- Topic 2
Introduction
In order to be able to produce the financial statements at the end of the period, a record needs to be
made of every individual transaction as it occurs. This is known as bookkeeping, and in this chapter
we will look at the standard way in which bookkeeping is done.
Every transaction has two effects.
For eg: purchase of a motor vehicle for cash.
The two effects of this transaction are:
On side, an increase in non- current assets;
On the other side, decrease in cash.
The nominal ledger
Every item in the Statement of Financial Position or income statement will have an “account” in which
we will keep a record of that item. The “account” used may be a page in a book, but these days more
likely a record on a computer.
The book or file containing the accounts is known as the nominal ledger (or general ledger) and the
accounts are called ledger accounts.
The ledger may be represented as below:
T account
Debit Credit
The left hand is always called the debit side (Dr) and the right hand side is called the credit side (Cr).
1
, BTHM- Double Entry Bookkeeping Financial Accounting- Topic 2
If we make an entry on the debit side, we say we debit the account. If we make an entry on the credit
side, we say we credit the account.
For every transaction, there will be two entries – one on the debit side of an account and one on the
credit side of another account. This is called double entry.
The general rules of double entry
Debit Credit
Increase in: Increase in:
Expense (IS) Liability (SFP)
Asset (SFP) Income (IS)
Drawings (SFP) Capital (SFP)
2
Introduction
In order to be able to produce the financial statements at the end of the period, a record needs to be
made of every individual transaction as it occurs. This is known as bookkeeping, and in this chapter
we will look at the standard way in which bookkeeping is done.
Every transaction has two effects.
For eg: purchase of a motor vehicle for cash.
The two effects of this transaction are:
On side, an increase in non- current assets;
On the other side, decrease in cash.
The nominal ledger
Every item in the Statement of Financial Position or income statement will have an “account” in which
we will keep a record of that item. The “account” used may be a page in a book, but these days more
likely a record on a computer.
The book or file containing the accounts is known as the nominal ledger (or general ledger) and the
accounts are called ledger accounts.
The ledger may be represented as below:
T account
Debit Credit
The left hand is always called the debit side (Dr) and the right hand side is called the credit side (Cr).
1
, BTHM- Double Entry Bookkeeping Financial Accounting- Topic 2
If we make an entry on the debit side, we say we debit the account. If we make an entry on the credit
side, we say we credit the account.
For every transaction, there will be two entries – one on the debit side of an account and one on the
credit side of another account. This is called double entry.
The general rules of double entry
Debit Credit
Increase in: Increase in:
Expense (IS) Liability (SFP)
Asset (SFP) Income (IS)
Drawings (SFP) Capital (SFP)
2
