Application Of The Principles Of Double Entry System

The principle of double entry system is one of the first thing that every accounting student should be familiar with. It is the foundation of accounting. The principle states that "For every debit entry, there must be a corresponding credit entry, and for every credit entry, there must be a corresponding debit entry. Every accounting Student must know this rule the same way they know their Surname. The following are how the principle of double entry can be applied.

1. There are two accounts involved in every transaction.
a. Receiving account or receiver
b. Giving account or giver

2. One of the accounts will be credited while the other will be debited.
a. Debit receiving account with value that it receives
b. Credit giving account with value it gives out.

We are going to explain the principles above with some illustration.

Jan 1. Started Business with $200 in the bank.
Two accounts are:

1. Capital account (out) = Credit
2. Bank account (in) = Debit

Jan 2. Banked cash $300.
Two accounts are:

1. Cash account (out) = Credit
2. Bank account (in) = Debit

Jan 3. Cash purchases $600.
Two accounts are:

1. Cash account (out) = Credit
2. Purchases account (in) = Debit

Jan 4. Micheal lent us $400 in cash.
Two accounts are:

1. Michael account (loan) (out) = Credit
2. Cash account (in) = Debit

Jan 5. Took $350 of the cash and paid into the bank.
Two accounts are:

1. Cash account (out) = Credit
2. Bank account (in) = Debit

Jan 6. Sold goods on credit to Samuel.
Two accounts are:

1. Sales account (out) = Credit
2. Samuel account (in) = Debit

Jan 7. We return goods to Joy $70.
Two accounts are:

1. Returns outward account (out) = Credit
2. Joy account (in) = Debit

Jan 8. Bought furniture for cash $100.
Two accounts are:

1. Furniture account (in) = Debit
2. Cash account (out) = Credit

Jan 9. Withdrew money $300 from the bank for private use.
Two accounts are:

1. Bank account (out) = Credit
2. Drawings account (in) = Debit

Jan 10. Withdrew cash $60 from bank for office use.
Two accounts are:

1. Bank account (out) = Credit
2. Cash account (in) = Debit

Jan 11. Samson put a further $20 into the business in form of cash.
Two accounts are:

1. Capital account (out) = Credit
2. Cash account (in) = Debit

Jan 12. Sold goods $15 and received cheque.
Two accounts are:

1. Sales account (out) = Credit
2. Bank account (in) = Debit

Jan 13. We paid Kingston equipment company by cheque $10.
Two accounts are:

1. Bank account (out) = Credit
2. Kingston equipment company (in) = Debit

Jan 14. Cash sales $350.
Two accounts are:

1. Cash account (in) = Debit
2. Sales account (out) = Credit

Jan 15. Purchased Motor van on credit from Ben.
Two accounts are:

1. Motor van account (in) = Debit
2. Ben account (Creditor) (out) = Credit

Jan 16. Paid wages $20 cash.
Two accounts are:

1. Cash account (out) = Credit
2. Wages account (in) = Debit

Jan 17. Received refund of insurance $10 by cash.
Two accounts are:

1. Cash account (in) = Debit
2. Insurance account (out) = Credit

Jan 18. Goods returned to us by David $70
Two accounts are:

1. Return inwards account (in) = Debit
2. David account (out) = Credit

There are some many transactions we can use to illustrate the principle of double entry, but we can't use them all. I have touched the key transactions which includes: Sales, purchases, return inwards, return outwards, increase in assets, decrease in assets, increase in liabilities and decrease in liabilities. With your knowledge on this, the sky will be your starting point not your limit.

If you have any questions to ask, you are free to use comments section.