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:

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

 

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Financial Accounting

 
 

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