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
|