Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.1

Chapter 2The double entry system for assets, liabilities and capital

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Learning objectivesAfter you have studied this chapter, you should

be able to:Explain what is meant by ‘double entry’Explain how the double entry system follows

the rules of the accounting equationExplain why each transaction is recorded into

individual accountsDescribe the layout of a ‘T-account’

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Learning objectives (Continued)Explain what is meant by the terms debit and

creditExplain the phrase ‘debit the receiver and

credit the giver’Prepare a table showing how to record

increases and decreases of assets, liabilities and capital in the accounts

Enter a series of transactions into T-accounts

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.4

The double entry systemEvery transaction affects two

items.

These effects need to be shown in the accounting books.

This is double entry bookkeeping.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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A double entry account

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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How recording in an accountaffects items

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.7

Or, to see this in the accounts

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.8

ActivityThe owner starts the business with £10,000 in cash on 1 August 2012.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)A van is bought for £4,500 in cash on 2 August 2012.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)Fixtures (e.g. shelves) are bought on credit from Shop Fitters for £1,250 on 3 August 2008.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)Paid the amount owning to Shop Fitters in cash on 17 August 2012.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.15

Activity (Continued)Combining all four of these transactions, the accounts now contain:

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.17 Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.18 Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.20

Learning outcomesYou should have now learnt:1.That double entry follows the rules of the

accounting equation2.That double entry maintains the principle

that every debit has a corresponding credit entry

3.That double entries are made in accounts in the accounting books

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 2.21

Learning outcomes (Continued)4. Why each transaction is entered into

accounts rather than directly into the statement of financial position

5. How transactions cause increases and decreases in asset, liability and capital accounts

6. How to record transactions in T-accounts