DOUBLE ENTRY

Double means two

Entry come from the word enter

This means that there something that is recorded twice (Financial transactions)

The double entry bookkeeping is the system of recording transactions having two fundamental aspects,
one involving the receiving of the benefit and the other giving the benefit, in the same set of books. In
this theory, as the two fold aspects of each transaction are recorded, therefore, it called double entry.

As per dual aspect concept of accounting every transaction involves two aspects, an aspect of giving and
an aspect of receiving. One who receives is debtor while the one who gives is a creditor. It is, therefore,
evident that for every debit entry, there must be a credit entry.

The rules of double entry states that for every financial transaction gives rise to two accounting entries,
one a debit and the other a credit.

Ledger account (T account because of how its drawn)

A debit is one of the following:

i. An increase in an asset is debited while a decrease in an asset is credited

Purchasing a motor vehicle for cash, Ksh. 200,000

Motor vehicle (Increase in an asset)

DR ksh. CR
Cash 200,000

Cash (decrease in an asset)

DR Ksh CR
Motor Vehicle 200,000
 ii. An increase in an expense is debited and a decrease in an expense is credited

Payment of salaries and wages at Ksh. 10000, cash

Wages and salaries

DR CR
Cash 10,000 Employee A 1000
Employee B 2000

Cash

DR CR
Wages and salaries account 10,000

iii. A decrease in liability is debited, while an increase in liability is credited

Purchase of MV on credit at Ksh. 200,000

Purchase (Motor vehicle)

DR CR
Accounts payable 200,000

Accounts payable

DR CR
Cash 50,000 Purchases (Motor vehicle) 200,000

Cash

DR CR
Accounts payables 50,000

A credit is one of the following:

i. An increase in liability
ii. An increase in income/sales (e.g, when making a sale)
iii. A decrease in an asset
Examples

A cash sale of Ksh. 200

The two sides of the transaction are:

i. Cash is received (debit entry in the cash account)

ii. Sales increases by Ksh. 200 (credit entry in the sales account)
Cash account

DR Ksh CR
Sales 200

Sales account

DR Ksh CR
Cash 200

Payment of rent bill amount to Ksh. 1,500 (Expense)

The two sides of this transaction are:

i. Cash is paid (Credit the cash account)

ii. Rent expense increases by Ksh. 1,500 (debit rent expense account)
Cash Account

DR CR
Rent expense account 1,500

Rent expense account

DR CR
Cash 1,500
 Buying some goods for cash Ksh. 2000
The two accounts affected by the transaction are:
i. Cash is paid (credit cash account)
ii. Purchases increases by Ksh. 2000 (Debit purchases)

Cash account

DR CR
Purchases 2000

Purchases

DR CR
Cash 2000

The procedure of balancing ledger accounts

1. Calculate the total of both sides of the ledger accounts

Ledger account

DR CR
Transaction A 100 Transaction B 4,000
Transaction C 2,500 Transaction D 540
Transaction E 650
Transaction F 1,200
Total 2,600 Total 6,390
If the credit side is more than the Debit side, the account has a credit balance and vice versa

2. Deduct the lower total from the higher total

6390-2600= Ksh. 3790

3. Now we can insert the result in step number 2 as the credit balance carried down (balance
c/d)on the side with the lower total
4. Now confirm if both sides of the ledger account balances
Ledger account

DR CR
Transaction A 100 Transaction B 4,000
Transaction C 2,500 Transaction D 540
Balance c/d 3790 Transaction E 650
Transaction F 1,200
6,390 6,390
 5. Insert the balance c/d as the new balance brought down (Balance b/d) on the other side of the
account

Ledger account

DR CR
Transaction A 100 Transaction B 4,000
Transaction C 2,500 Transaction D 540
Balance c/d 3790 Transaction E 650
Transaction F 1,200
6,390 6,390
Balance b/d 3790

Question

The following transactions relate to Mokato Traders for the month of January 2022:

1. Started business with Ksh. 1,000,000 at the bank

2. Purchased furniture for Ksh. 200,000 and paid by cheque
3. Purchased goods for Ksh. 150,000 and paid by cheque
4. Paid rent Ksh. 50,000 by cheque
5. Withdrew Ksh. 100,000 from the bank for office use
6. Made cash sales amounting to Ksh. 120,000
7. Deposited Ksh. 80,000 from cash till into the bank account.
8. Deposited Ksh. 400,000 into the bank account from private savings

Prepare ledgers accounts to record the above transactions

Solution

Capital account

DR CR
Balance c/d 1,000,000 Bank 1,000,000
Balance b/d 1,000,000
 Bank account

DR CR
Capital 1,000,000 Furniture 200,000
Cash 80,000 Purchases 150,000
Private Savings 400,000 Rent 50,000
Office use 100,000
Balance c/d 980,000
1,480,000 1,480,000
Balance b/d 980,000

Furniture account

DR CR
Bank 200,000 Balance c/d 200,000
Balance b/d 200,000

Purchases account

DR CR
Bank 150,000 Balance c/d 150,000
Balance b/d 150,000

Rent account

DR CR
Bank 50,000 Balance c/d 50,000
Balance b/d 50,000

Office use account

DR CR
Bank 100,000 Balance c/d 100,000
Balance b/d 100,000
 Cash account

DR CR
Sales 120,000 Bank 80,000
Balance c/d 40,000
120,000 120,000
Balance b/d 40,000

Sales account

DR Ksh. Ksh. CR
Balance c/d 120,000 Cash 120,000
Balance b/d 120,000

Private savings account

DR CR
Balance c/d 400,000 Bank 400,000
Balance b/d 400,000

Trial balance

Balances b/d on ledger accounts can be collected in a list of account balances. The debit and credit
balances should be equal.

There is no foolproof method for making sure that all entries have been posted on the correct ledger
account, but a technique which shows up the more obvious mistakes is to prepare a trial balance.

The following steps are taken in order to prepare a trial balance.

1. Collect (prepare) together the ledger accounts

2. Balance the ledger accounts
3. Collect the balances on the ledger accounts

If the basic principle of double entry has been correctly applied throughout the period it will be found
that the credit balances equal the debit balances in total.
 MOKATO TRADERS

TRIAL BALANCE

AS AT JANUARY 2022

Particulars DR CR
Ksh. Ksh.
Capital account 1,000,000
Bank account 980,000
Furniture account 200,000
Purchases account 150,000
Rent account 50,000
Office use account 100,000
Cash account 40,000
Sales account 120,000
Private savings account 400,000
Total 1.520,000 1,520,000