1. Introduction to Double Entry Book-keeping

2. The functions of book-keeping and accounting are subject to a set of rules and principles, commonly referred to as accounting concepts.

3. The following accounting concepts are particularly relevant to book-keeping: 1.Business Entity Concept 2.Money Measurement Concept 3.Historic Cost Concept 4.Dual Aspect Concept

4. The Accounting Equation Assets - Liabilities = Capital (Own)(Owe) Introduce £10,000 to the business £10,000 - 0 = £10,000 Arrange a loan of £10,000 £20,000 - £10,000 = £10,000 Pay £5,000 off the loan £15,000 - £5,000 = £10,000 (Worth)

5. The Accounting Equation So every transaction has a Dual Effect. So in the accounts every transaction is recorded with two entries. (Hence Double Entry Book-Keeping) Let’s have a go at an activity

6. The Book-Keeping System Source Documents Primary Accounting Records Double Entry Book-keeping Final Accounts Trial Balance (Level 2) (Level 3)

7. The Book-Keeping System A summary of all the accounts is compiled on a Trial Balance This is a mathematical check that the double entries have been recorded accurately

8. The Book-Keeping System Information from the Trial Balance is analysed to prepare the Final Accounts Profit and Loss Account Balance Sheet

9. Double-entry involves two entries for each transaction – a debit entry and a credit entry The two entries are for the same amount but are made in separate accounts

10. The accounts are normally grouped together in books known as ‘ledgers’ Sales Ledger Purchases Ledger General (Nominal) Ledger See page 140 regarding a further break down of the general ledger

11. Debits and Credits – which side of the account? A way of working out which side the debit or credit should go – except for Bank Account, which has its own rules - is to remember the following diagram: An easy way to remember these words are by remembering the first letters PEARLS: PEA (for the debit side) RLS (for the credit side) DebitCredit Purchases Expenses Assets Revenue (Sales) Liabilities Sources of Funds (Capital)

12. Payment of insurance through the bank involves entries in two accounts – Insurance Account and Bank Account

13. Sales Transactions DateDetails£DateDetails£ Bank Account DateDetails£DateDetails£ Sales Account 10.01.1050.00Bank 10.01.1050.00Sales Let us suppose that on 10 Jan. 2010 you sell goods worth £50.00 to a customer who pays by cheque. As we are using Double Entry, we will need two accounts. These will be the Sales Account and the Bank Account.

14. Sales Transactions All Cash Sales, i.e. where payment is received, will be recorded this way. Debit Bank, Credit Sales. Unfortunately, business transactions are a little more complicated. Business transactions are usually carried out on a credit basis i.e. payment is made at a later date. Business transactions usually involve VAT. Let us suppose, on 10 Jan. 2010, we sell goods worth £100.00 + VAT (£20.00) on credit to Petersons Ltd.

15. This transaction would be recorded as follows. DateDetails£DateDetails£ Sales Account DateDetails£DateDetails£ VAT Account DateDetails£DateDetails£ Petersons Ltd Account 10.01.10Petersons Ltd100.00 10.01.10120.00Sales 10.01.1020.00Petersons Ltd

16. Sales Returns Transactions Occasionally, goods that have been sold and delivered to a customer may not be the correct items or may be faulty. If this is the case, the goods will be returned. This is a normal business transactions and needs to be recorded in the accounts. Let us suppose, on 15 Jan. 2010, goods worth £20.00 + VAT (£4.00) are returned by Petersons Ltd.

17. This transaction would be recorded as follows. DateDetails£DateDetails£ Sales Returns Account DateDetails£DateDetails£ VAT Account DateDetails£DateDetails£ Petersons Ltd Account 15.01.10Petersons Ltd20.00 10.01.10120.00Sales 10.01.1020.00Petersons Ltd 15.01.10 24.00 4.00 Sales Returns Petersons Ltd

18. Purchases Transactions DateDetails£DateDetails£ Bank Account DateDetails£DateDetails£ Purchases Account 10.01.10 50.00 Bank 10.01.10 50.00 Purchases Let us suppose that on 10 Jan. 2010 you purchase goods worth £50.00 and pay by cheque. As we are using Double Entry, we will need two accounts. These will be the Purchases Account and the Bank Account.

19. Purchases Transactions All Cash Purchases, i.e. where payment is made, will be recorded this way. Credit Bank, Debit Purchases. Unfortunately, business transactions are a little more complicated. Business transactions are usually carried out on a credit basis i.e. payment is made at a later date. Business transactions usually involve VAT. Let us suppose, on 10 Jan. 2010, we purchase goods worth £100.00 + VAT (£20.00) on credit from Wentworth Ltd.

20. This transaction would be recorded as follows. DateDetails£DateDetails£ Purchases Account DateDetails£DateDetails£ VAT Account DateDetails£DateDetails£ Wentworth Ltd Account 10.01.10Wentworth Ltd100.00 10.01.10120.00Purchases 10.01.1020.00Wentworth Ltd

21. Purchases Returns Transactions Occasionally, goods that have been purchased and delivered to us may not be the correct items or may be faulty. If this is the case, the goods will be returned. This is a normal business transaction and needs to be recorded in the accounts. Let us suppose, on 15 Jan. 2010, goods worth £20.00 + VAT (£4.00) are returned to Wentworth Ltd.

22. This transaction would be recorded as follows. DateDetails£DateDetails£ Purchases Returns Account DateDetails£DateDetails£ VAT Account DateDetails£DateDetails£ Wentworth Ltd Account 15.01.10Wentworth Ltd20.00 10.01.10120.00Purchases 10.01.1020.00Wentworth Ltd 15.01.10 Purchases Returns Wentworth Ltd 24.00 4.00