5-1 Double-Entry System CHAPTER 5. 5-2 Double-Entry System The double-entry system is considered as the heart of modern accounting. All accounting systems.

5-1

Double-Entry System

CHAPTER 5CHAPTER 5

5-2

Double-Entry System

The double-entry system is considered as the heart of modern accounting.

All accounting systems operate on the basis of the double-entry system.

Manual accounting system

Computerized accounting system

5-3

Double-Entry System

The double-entry system provides checks and balances to ensure that your books are always in balance.

In double-entry accounting, each transaction has two journal entries: a debit and a credit.

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Double-Entry System

Credits Debits＝

Because debits equal credits, double-entry accounting prevents some common bookkeeping errors.

The sum of all debits should always equal the sum of all credits.

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T Account

The T account is the basic form of the double-entry system.

Title of Account

Left orDebit Side

Right orCredit Side

The rules of the double-entry system are that one transaction affects at least two accounts --- debit accounts and credit accounts.

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Double-Entry System

Assets = Liabilities + Owner’s Equity

Accounting equation

Account Type Debit Credit

Assets Increase Decrease

Liabilities Decrease Increase

Owner’s equity Decrease Increase

Income Decrease Increase

Expenses Increase Decrease

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Transaction Analysis

Now, let’s analyze the transaction of

George Ross Photocopy Company

…

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Transaction 1

March 3: Mr. George starts his photocopy company on March 1 with 20,000 us dollars that was immediately deposited into the bank.

Assets

Owner’s equity ? Increase or decrease

Debited or Credited

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Transaction 1


Cash at Bank Increase

George Ross, Capital Increase

Cash at Bank $10,000

George Ross, Capital $10,000

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Transaction 2

March 6: Rented another office, paying a year’s rent in advance, $4,800 by check.

Assets 1 ? Increase or decrease

Debited or CreditedAssets 2

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Transaction 2


Prepaid Rent Increase

Cash at Bank Decrease

Prepaid Rent $4,800

Cash at Bank $4,800

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Transaction 3

March 7: Purchased photocopy equipment for $2,000 with cash.

Assets 1

Assets 2?

Increase or decrease

Debited or Credited

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Transaction 3


Photocopy Equipment Increase

Cash Decrease

Photocopy Equipment $2,000

Cash $2,000

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Transaction 4

March 7: Purchased office equipment from Hougas Equipment Co. for $5,300, paying $2,300 in cash and agreeing to pay the rest next month.

Assets 1

Assets 2 ? Increase or decrease

Debited or CreditedLiability

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Transaction 4



Office Equipment Increase

Cash Decrease

Accounts Payable Increase

Office Equipment $5,300

Cash $2,300

Accounts Payable 3,000

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Transaction 5

March 8: Purchased on credit photocopy supplies for $2,300 an office supplies for $800 from Tim Supply Co.

Assets

Liability?


Debited or Credited

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Transaction 5


Photocopy Supplies Increase

Office Supplies Increase


Photocopy Supplies $2,300

Office Supplies 800

Accounts Payable $3,100

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Transaction 6

March 8: Paid $600 in cash for a one-year insurance policy with coverage effective March 1.

Assets 1

Assets 2?


Debited or Credited

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Transaction 6



Prepaid Insurance Increase

Cash Decrease

Prepaid Insurance $600

Cash $600

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Transaction 7

March 9: Paid Tim Supply Co. $3,100 of the amount owed by check.

Assets ? Increase or decrease

Debited or CreditedLiability

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Transaction 7



Accounts Payable Decrease

Cash at Bank Decrease

Accounts Payable $3,100

Cash at Bank $3,100

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Transaction 8

March 10: Performed a service by printing throwaways for a garment dealer and agreed to collect the fee at the beginning of the next month, $6,000.

Assets ? Increase or decrease

Debited or CreditedOwner’s equity

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Transaction 8



Accounts Receivable Increase

Photocopy Fees Earned Increase

Accounts Receivable $6,000

Photocopy Fees Earned $6,000

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Transaction 9

March 14: Accept $1,300 as an advance fee for copying works to be done for an advertising agency.

Assets

Liability?


Debited or Credited

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Transaction 9



Cash Increase

Unearned Photocopy Fees Increase

Cash $1,300

Unearned Photocopy Fees $1,300

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Transaction 10

March 19: Performed a service by printing price lists for Ward Fashion Company and collect a check of $3,400.

Assets

?Increase or decrease

Debited or CreditedOwner’s equity

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Transaction 10



Cash Increase

Photocopy Fees Earned Increase

Cash at Bank $3,400

Photocopy fees Earned $3,400

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Transaction 11



George Ross, Withdrawals Decrease

Cash Decrease

George Ross, Withdrawals $980

Cash $980

March 24: George Ross withdrew $980 from the business for personal living expenses.

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Transaction 12

March 25: Paid the secretary salary, $1,100.


Office Salary Expense Decrease

Cash Decrease

Office Salary Expense $1,100

Cash $1,100

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Transaction 13



Utility Expense Decrease

Cash Decrease

Utility Expense $230

Cash $230

March 29: Received and not paid the utility bill of $700.

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Transaction 14



Telephone Expense Decrease


Telephone Expense $120

Accounts Payable $120

March 31: Received a telephone bill, $120.

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T account

Cash(at Bank)

Bal. $410

3. $10,00014. 1,30019. 3,400

6. $4,8007. 2,0007. 2,3008. 6009. 3,10024. 98025. 1,10029. 230

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T account

Accounts Receivable

10. $6,000

Bal. $6,000

Photocopy Supplies

8. $2,300

Bal. $2,300

Office Supplies

8. $800

Bal. $800

Prepaid Insurance

8. $600

Bal. $600

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T account

Prepaid Rent

6. $4,800

Bal. $4,800

Photocopy Equipment

7. $2,000

Bal. $2,000

Office Equipment

7. $5,300

Bal. $5,300

Accounts Payable

9. $3,1008. 3,100

Bal. $600

7. $3,000

31. 120

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T account

Unearned Photocopy Fees

14. $1,300

Bal. $1,300

George Ross, Capital

3. $10,000

Bal. $10,000

George Ross, Withdrawal

24. $980

Bal. $980

Photocopy Fees Earned

Bal. $9,400

10. $6,00019. 3,400

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T account

Office Salary Expense

25. $1,100

Bal. $1,100

Utility Expense

29. $230

Bal. $230

Telephone Expense

31. $120

Bal. $120

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T account

On the basis of the T account calculation, we get the result as follows:

Assets = Liabilities + Owner’s Equity

$21,390 = $4420 + $16,970

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WE ARE SAILING RIGHT ALONG!!

5-1 Double-Entry System CHAPTER 5. 5-2 Double-Entry System The double-entry system is considered as the heart of modern accounting. All accounting systems.

Documents

doubleentry system assets

credited slide

doubleentry accounting

doubleentry system chapter

account typedebitcredit

credited liability slide

credited assets

assets liability