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Learn what are the Rules of Double Entry Bookkeeping

August 17th, 2011 Comments off

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Tabulated below are the rules of double entry bookkeeping:

Note the basic rule of double entry bookkeeping:

every financial transaction gives rise to two accounting entries,one a debit and the other a credit. The total value of debit entries in the nominal ledger is always equal at any time to the total value of credit entries.
which account receives the credit entry and which receives the debit depend on the nature of the transactions

Salient points on nature of transactions which affects the double entry bookkeeping:

An INCREASE in an EXPENSE ( re: purchase of petrol) or an INCREASE in an ASSET ( re: purchase of plant & machinery) is a DEBIT
An INCREASE in REVENUE ( like a sale) or an INCREASE in a LIABILITY (re: buying goods on credit) is a CREDIT
A DECREASE in an ASSET ( re: using cash to pay items) is a CREDIT
A DECREASE in a LIABILITY ( re:paying a creditor) is a DEBIT

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