Discipline: Financial and managerial accounting Theme 3: Double Entry Lecturer: Vornicova Natalia, Master of Economic Sciences Chisinau 2015

To keep a company's financial data organized, accountants developed a system that sorts transactions into records called accounts. The list of the company's transactions is referred to as the company's chart of accounts.

Depending on the size of a company and the complexity of its business operations, the chart of accounts may list as few as thirty accounts or as many as thousands. A company has the flexibility of change its chart of accounts to best meet its needs.

Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. Account numbers are often four or more digits in length with each digit representing a division of the company, the department, the type of account, etc.

The chart of accounting of the Republic of Moldova cover the following Classes: Class I – Long-term assets (fixed assets) A Class II – Current assets (short-term assets) A Class III – Own capital (equity) P Class IV – Long- term liabilities P Class V – Current liabilities P Class VI – Revenues P Class VII – Expenses A Class VIII – Management accounts A Class IX – Off-balance sheet accounts

A business needs to determine the type of bookkeeping system that will be used for recording their business transactions. Many small businesses start out using the single entry system.

The single entry system is an "informal" accounting/bookkeeping system where a user of this system makes only one entry to enter a business financial transaction. It generally includes a daily summary of cash receipts and a monthly record of receipts and disbursements (worksheets).

The core of this system is placed on determining the profit or loss of a business. It got its name because record of each transaction makes only once as either revenue or as an expense (debits and credits are not used to record a financial event).

The single entry system may be acceptable for tax purposes, it does not provide a business with all the financial information needed to adequately report.

The double entry system is the standard system used by businesses and other organizations to record financial transactions.

Since all business transactions consist of an exchange of one thing for another, double entry bookkeeping using debits and credits, is used to show this two-fold effect. Debits and credits provide the ability to record the entries twice.

The double entry system also has built-in checks and balances. Due to the use of debits and credits, the double-entry system is self-balancing. The total of the debit values recorded must equal the total of the credit values recorded.

In accounting is opened an account for each item in records. The account has the following format:

The conventional account has the format of the letter ‘T’; so they are often known to as T-accounts.

Accounts are the summary record of all transactions relating to a particular item in a business.

Opening balance is the amount of funds in a company's account at the beginning of a new financial period.

Closing balance is the amount remaining in an account within your chart of accounts, positive or negative, at the end of an accounting period or yearend.

A ledger is a whole bunch of T-accounts grouped together. The main ledger is called the general ledger.

Assets and Expense Type of Accounts are increased using the Left Side of the account (debited) and decreased using the Right Side of the account (credited).

The reverse is true for the Liability, Equity, and Revenue Type of Accounts. These Type Of Accounts are increased using the Right Side of the account (credited) and decreased using the Left Side of the account (debited).

Closing balance of assets accounts = Opening balance + entries (Dt) – outputs (Ct) Closing balance of liabilities accounts = opening balance + entries (Ct) – outputs (Ct)

In a system of accounts, synthetic (first order) accounts are distinguis hed from analytic (detail) accounts; analytic accounts are drawn up on the basis of synthetic accounts.

The accuracy of the data recorded in accounts is checked by comparison of the totals of the appropriate synthetic and analytic accounts during the preparation of turnover statements.

The accounts are closely linked with the balance sheet. They are opened that is, entries are made in accounts at the beginning of the report period using the data contained in the balance sheet; at the end of the report period, the balance sheet is drawn up from the different data contained in the synthetic accounts.

The entry in synthetic and analytic accounts are reconciled every month; the balance sheet is considered correct only if the entries reconcile.

Thanks for attention!