Double entry example 1

In this example the following will be used:

Books of prime entry (Books of original entry)

 Sales Invoice Daybook (records customer Invoice Daybook)

 Bank Receipts Daybook (records customer & non customer receipts)

 Purchase Invoice Daybook (records supplier Invoice Daybook)

 Bank Payments Daybook (records supplier & non supplier payments)

The books of prime entry are where transactions are first recorded. They are not part of the Double-
entry system.

Ledger Cards

 Customer Ledger Cards

 Supplier Ledger Cards

 General Ledger (Nominal Ledger)

 Bank Account Ledger

 Trade Creditors Ledger

 Trade Debtors Ledger

[edit]Purchase invoice daybook

Purchase Invoice Daybook

Date Supplier Name Reference Amount Electricity Widgets

10 July 2006 Electricity Company PI1 1000 1000

12 July 2006 Widget Company PI2 1600 1600

------- ------- -------

Total 2600 1000 1600

 ==== ==== ====

Credit Debit Debit

Trade Electricity Widgets

Creditors G/L G/L

control a/c a/c a/c

Each individual line is posted as follows:

 The amount value is posted as a credit to the individual supplier's ledger a/c

 The analysis amount is posted as a debit to the relevant general ledger a/c

From example above:

 Line 1 - Amount value 1000 is posted as a credit to the Supplier's ledger a/c ELE01-Electricity
Company

 Line 2 - Amount value 1600 is posted as a credit to the Supplier's ledger a/c WID01-Widget
Company

The totals of each column are posted as follows:

 Amount total value 2600 posted as a credit to the Trade creditors control a/c

 Electricity total value 1000 posted as a debit to the Electricity General Ledger a/c

 Widget total value 1600 posted as a debit to the Widgets General Ledger a/c

Double-entry has been observed because Dr = 2600 and Cr = 2600.

[edit]Bank payments daybook

The payments book is not part of the double-entry system.

Bank Payments Daybook

 Date Supplier Name Reference Amount Suppliers Wages

17 July 2006 Electricity Company BP701 1000 1000

19 July 2006 Widget Company BP702 900 900

28 July 2006 Owner's Wages BP703 400 400

------- ------- -------

Total 2300 1900 400

==== ==== ====

Credit Debit Debit

Bank Trade Wages

Account Creditors control a/c

control a/c

Keys: PI = Purchase Invoice, BP = Bank Payment

Each individual line is posted as follows:

 The amount value is posted as a debit to the individual supplier's ledger a/c.

 The analysis amount is posted as a credit to the relevant general ledger a/c.

From example above:

 Line 1 - Amount value 1000 is posted as a debit to the Supplier's ledger a/c ELE01-Electricity
Company.
  Line 2 - Amount value 900 is posted as a debit to the Supplier's ledger a/c WID01-Widget
Company.

The totals of each column are posted as follows:

 Amount total value 2300 posted as a credit to the Bank Account.

 Trade Creditors total value 1900 posted as a debit to the Trade creditors control a/c.

 Other total value 400 posted as a debit to the Wages control a/c.

Double-entry has been observed because Dr = 2300 and Cr = 2300.

The daybooks are the key documents (books) to the double entry system. From these daybooks we
create the ledger accounts. Each transaction will be recorded in at least two ledger accounts.

[edit]Supplier ledger cards

Supplier Ledger Cards

A/c Code: ELE01 - Electricity Company

Date Details Reference Amount Date Details Reference Amount

17 July Bank Payments

BP701 1000 10 July 2006 Invoice PI1 1000
2006 Daybook

31 July
Balance c/d 0
2006

------- -------

1000 1000

==== ====

1 August
Balance b/d 0
2006
 A/c Code: WID01 - Widget Company

Date Details Reference Amount Date Details Reference Amount

19 July Bank Payments

BP702 900 12 July 2006 Invoice PI2 1600
2006 Daybook

31 July
Balance c/d 700
2006

------- -------

1600 1600

==== ====

1 August
Balance b/d 700
2006

[edit]Sales/customers

[edit]Sales daybook

Sales Invoice Daybook

Date Customer Name Reference Amount Parts Service

2 July 2006 JJ Manufacturing SI1 2500 2500

29 July 2006 JJ Manufacturing SI2 3200 3200

------- ------- -------

 Total 5700 2500 3200

==== ==== ====

Debit Credit Credit

Trade Sales Sales

debtors Parts Service

control a/c alabiebi a/c a/c

Each individual line is posted as follows:

 The amount value is posted as a debit to the individual customer's ledger a/c.

 The analysis amount is posted as a credit to the relevant general ledger a/c.

From example above:

 Line 1 - Amount value 2500 is posted as a debit to the Customer's ledger a/c JJM01-JJ
Manufacturing.

 Line 2 - Amount value 3200 is posted as a debit to the Customer's ledger a/c JJM01-JJ
Manufacturing.

The totals of each column are posted as follows:

 Amount total value 5700 posted as a debit to the Trade debtors control a/c.

 Sales-parts total value 2500 posted as a credit to the Sales parts a/c.

 Sales-service total value 3200 posted as a credit to the Sales service a/c.

Double-entry has been observed because Dr = 5700 and Cr = 5700.

[edit]Customer ledger cards

Customer Ledger cards are not part of the Double-entry system. They are for memorandum purposes
only. They allow you to know the total amount an individual customer owes you.
 CUSTOMER LEDGER CARDS

A/c Code: JJM01 - JJ Manufacturing

Date Details Reference Amount Date Details Reference Amount

Sales invoice 20 July Bank receipts

2 July 2006 SI1 2500 BR1 2500
daybook 2006 daybook

Sales invoice 31 July

29 July 2006 SI2 3200 balance c/d 3200
daybook 2006

------- -------

5700 5700

==== ====

1 August
Balance b/d 3200
2006

[edit]General (nominal) ledger

GENERAL (NOMINAL) LEDGER

Sales parts

Date Details Reference Amount Date Details Reference Amount

31 July Sales invoice

Balance c/d 2500 2 July 2006 SDB 2500
2006 daybook

------- -------
 2500 2500

==== ====

1 August
Balance b/d 2500
2006

Sales service

Date Details Reference Amount Date Details Reference Amount

31 May 29 July Sales invoice

Balance c/d 3200 SDB 3200
2006 2006 daybook

------- -------

3200 3200

==== ====

1 June 2010 Balance b/d 3200

Electricity

Date Details Reference Amount Date Details Reference Amount

10 May 30 May
Electricity Co. PDB 1000 Balance c/d 1000
2010 2010

------- -------

1000 1000
 ==== ====

1 June
Balance b/d 1000
2010

Water

Date Details Reference Amount Date Details Reference Amount

12 May 31 May
water Co. Pdb 1600 Balance c/d 1600
2010 2010

------- -------

1600 1600

==== ====

1 August
Balance b/d 1600
2010

Other a/c

Date Details Reference Amount Date Details Reference Amount

28 July 31 July
Owner's Wages BPDB 400 Balance c/d 400
2006 2006

------- -------

400 400
 ==== ====

1 August
Balance b/d 400
2006

Bank Control A/c

Date Details Reference Amount Date Details Reference Amount

31 July Bank receipts 31 July Bank payments

BRDB 2500 BPDB 2300
2006 daybook 2006 daybook

31 July
Balance c/d 200
2006

------- -------

2500 2500

==== ====

1 August
Balance b/d 200
2006

Trade Debtors Control A/c

Date Details Reference Amount Date Details Reference Amount

31 July Bank receipts

1 July 2006 Balance b/d 0 BRDB 2500
2006 daybook

31 July Sales Invoice 31 July

SDB 5700 Balance c/d 3200
2006 Daybook 2006
 ------- -------

5700 5700

==== ====

1 August
Balance b/d 3200
2006

Trade Creditors Control A/c

Date Details Reference Amount Date Details Reference Amount

31 July Bank Payments

BPDB 1900 1 July 2006 Balance b/d 0
2006 Daybook

31 July 31 July
Balance c/d 700 Purchase Daybook PDB 2600
2006 2006

------- -------

2600 2600

==== ====

1 August
Balance b/d 700
2006

The customers ledger cards shows the breakdown of how the trade debtors control a/c is made up.
The trade debtors control a/c is the total of outstanding debtors and the customer ledger cards shows
the amount due for each individual customer. The total of each individual customer account added
together should equal the total in the trade debtors control a/c.
The supplier ledger cards shows the breakdown of how the trade creditors control a/c is made up. The
trade creditors control a/c is the total of outstanding creditors and the suppliers ledger cards shows the
amount due for each individual supplier. The total of each individual supplier account added together
should equal the total in the trade creditors control a/c.

Each Bank a/c shows all the money in and out through a bank. If you have more than one bank
account for your company you will have to maintain separate bank account ledger in order to complete
bank reconciliation statements and be able to see how much is left in each account.

[edit]Bank account

Bank A/c

Date Details Reference Amount Date Details Reference Amount

17 July Bank Payments

1 July 2006 Balance b/d 0 BP701 1000
2006 Daybook

20 July Bank Receipts 19 July Bank Payments

BR1 2500 BP702 900
2006 Daybook 2006 Daybook

28 July Bank Payments

BP703 400
2006 Daybook

31 July
Balance c/d 200
2006

------- -------

2500 2300

==== ====

1 August
Balance b/d 200
2006

[edit]Unadjusted trial balance

 Trial balance as at 31 July 2006

A/c description Debit Credit

Sales-parts 2500

Sales-service 3200

Widgets 1600

Electricity 1000

Other 400

Bank 200

Trade Debtors Control A/c 3200

Trade Creditors Control A/c 700

------- -------

6400 6400

===== =====

Both sides must have the same overall total

Debits = Credits.
The individual customer accounts are not to be listed in the trial balance, as the Trade debtors control
a/c is the summary of each individual customer a/c......

The individual supplier accounts are not to be listed in the trial balance, as the Trade creditors control
a/c is the summary of each individual supplier a/c.

Important note: this example is designed to show double entry. There are methods of creating a trial
balance that significantly reduce the time it takes to record entries in the general ledger and trial
balance.

[edit]Profit-and-loss statement and balance sheet

Profit and loss statement

for the month ending 31 July 2006

Dr

x Sales

x Sales-parts 2500

x Sales-service 3200

x -------

x 5700

x Widgets 1600

x -------

x Gross Profit 4100

x Less expenses

x Electricity 1000

x Other 400

x -------

x 1400

x -------

x Net Profit 2700

x ====

Balance sheet

as at 31 July 2006

Dr

x Current Assets

x Bank A/c 200

x Trade Debtors 3200

x -------
x 3400

x Current Liabilities

x Trade Creditors 700

x -------

x 700

x -------

x Net Current Assets 2700

x ====

x Capital & Reserves

x Revenue Reserves a/c 2700

x -------

x 2700

x ====

[edit]Double Entry Example 2

[edit]Transactions
XYZ Company is closing its books for the end of the month. Each of the daily journals has been
summarized and the amounts are ready to be transferred to the general ledger. The amounts to be
transferred are:

 Purchase raw materials on trade credit: $500,000

 Pay workers from cash in bank to make goods: $1,500,000

 Pay sales force from cash in bank to sell goods: $1,000,000

 Sell goods for cash: $3,500,000

To close the books for the month, we will adjust expenses and revenue to zero by appropriately
crediting and debiting the income summary and then closing the income summary toretained
earnings (part of equity).

These items are entered in the ledger below; each matching credit and debit have been numbered to
make finding them in the ledger easier.

[edit]Ledgers

General Ledger (in 000s)

Transaction Debit Credit Balance

Expenses

Balance forward -

1 Raw materials $ 500 $ 500

2 Labor $ 1500 $ 2000

3 Sales costs $ 1000 $ 3000

5 Income summary $ 3000 -

 Total $ 3000 $ 3000

Revenue

Balance forward -

4 Revenue from sales $ 3500 $ 3500

6 Income summary $ 3500 -

Total $ 3500 $ 3500

Cash

Balance forward $11000

2 Labor $ 1500 $ 9500

3 Sales costs $ 1000 $ 8500

4 Revenue from sales $ 3500 $12000

Total $ 3500 $ 2500

Accounts Payable

Balance forward $ 1000

1 Raw materials $ 500 $ 1500

Total - $ 500
 Income summary

Balance forward -

5 Expense $ 3000 $ 3000

6 Revenue $ 3500 $ 500

7 Retained earnings $ 500 -

Total $ 3500 $ 3500

Retained earnings

Balance forward $10000

7 Income summary $ 500 $10500

Total - $ 500

Total all accounts: $13500 $13500

The amount in equity (in the form of retained earnings) has changed with a net credit of $500,000.
Since equity has a normal balance of credit, this means there is now $500,000 more in equity than at
the beginning of the month.

[edit]See also

 Nostro and vostro accounts

 Single-entry accounting system

[edit]Notes and references

1. ^ Double Entry Bookkeeping

2. ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic

History29 (1): 79–96 [92–3]

3. ^ G. A. Lee (1977), "The Coming of Age of Double Entry: The Giovanni Farolfi Ledger of

1299-1300", Accounting Historians Journal, 4(2): 79-95

4. ^ Luca Pacioli: The Father of Accounting

5. ^ La Riegola De Libro

6. ^ Livio, Mario (2002). The Golden Ratio. New York: Broadway Books. pp. 130–

131. ISBN 0-7679-0816-3.

7. ^ Lane, Frederic C; Riemersma, Jelle, eds (1953). Enterprise and Secular Change:

Readings in Economic History. R. D. Irwin. p. 38. (quoted in "Accounting and rationality")

8. ^ Woodford, William; Wilson, Valerie; Freeman, Suellen; Freeman, John

(2008).Accounting: A Practical Approach (2 ed.). Pearson Education. pp. 24. ISBN 978-0-409-

32357-3.

9. ^ IASB Framework for the Preparation and Presentation of Financial Statements,

Paragraph 47

[edit]External links

Wikibooks has a book on the

topic of

Accounting

 A Concise Explanation of the Accounting Equation

 A double entry GnuCash How-to

 Bean Counter's bookkeeping tutorial

 Bookkeeping Terms

 GnuCash data entry concepts

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