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Basic Accounting Lecture 2

How to record double entry book keeping The accounting cycle
1. Collect and verify source documents
2. Analyse each transaction
3. Journalise each trans
4. Post to the ledger record in book
5. Prepare a trial balance
6. Prepare a worksheet
7. Prepare financial statements
8. Journalise and post closing entries
9. Prepare a post-closing trial balance
Golden rule 1 a debit entry has an equal and opposite credit entry
Debit entries (record on left hand side)

An increase to an asset
A decrease to a liability
An increase to an item of expense
A decrease to an item of income

Credit entries (record on right hand side)

An increase to a liability
A decrease to an asset
An increase to an item of income (sales)
A decrease to an item of expense

Golden Rule 2 DEAD CLIC

Debit Credit
Expenses

Liabilities
Assets Income
Drawings Capital
The Golden Rule 3 PEARLS
Debit Credit
Purchases Revenue
Expenses

Liabilities
Assets Sales
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Account Amount Debit Credit Asset liability

Name income
expense
Cash at bank 86560 X Asset
Bank loan 29000 X Liability
Capital 51000 X Special
Liability
Motor 23600 X Asset
vehicles
Purchases 22345 X Expense
Trade 8742 X Liability
payables
Trade 2890 X Asset
receivables
Sales 58853 X Income
revenues
Rent and 6800 X Expense
rates
Wages 5400 X Expense
Totals 147595 147595

Dannys fast and fury business

Danny wins 50k, uses to make business, sells hi tech car parts
Debit bank 50k
Credit capital 50k
Buys 50 woofer speakers, paid by cheque, cost = 650 each
Debit purchases 32.5k
Credit bank - 32.5k ETC
Balancing the ledgers
Look at income and credit, make total, and have to be equal.