BOOK KEEPING FORM ONE – DOUBLE ENTRY SYSTEM

Meaning:

Is the book keeping principle of recording transactions twice in a book of account whereby the principle states that every   debit entry must have corresponding credit entry and every credit entry  must have corresponding  debit entry with the same amount.

 The fundamental rule to double entry system is to debit the account what is received and credit what is given out.

       Example; Mr. Juma started business on 1st June 2008 with capital in cash 30,000/=

   June     2. With capital in cash 30,000/=

              3. Bought goods for cash Sh. 22,000/=

              4. Sold goods for cash of Sh 27,000/=

              5. Paid carriages sh 850/=

              10. Cash sales sh 12,000/=

              15. Bought goods for cash sh 25,000/=

              18. Paid rent sh 1,200/=

              20. Paid advertising sh. 1,200/=

              22. Sold goods for cash sh. 15,000/=

              25. Cash sales to date sh. 20,000/=

              26. Paid wages goods for cash sh 500/=

              27. Purchased goods for cash sh 500/=

              28. Sold goods for cash sh 350/=

Record the transactions in the appropriate ledger account.

Solution

DR                                        CASH A/C (L 1)                                   CR

 
 

Dr     CAPITAL ACCOUNT        (2)                                 Cr

Dr                                    FURNITURE ACCOUNT   (3)                           Cr

  
Dr             PURCHASES ACCOUNT  (4)                                   Cr

Dr                                       SALES     ACCOUNT (5)           Cr

 
 

    Dr                                     CARRIAGE ACCOUNT   (6)                        Cr

     Dr                             RENT   ACCOUNT (7)                                        Cr

 

   
     Dr      WAGES   ACCOUNT   (9)                                                                 Cr

EXERCISE

Tatu commenced a business on 1st August 1980 by introducing Sh. 30,000 in cash.

August  1. Purchased goods for cash   15,000

1.      Paid carriage on goods purchased 100.

               5.  Sold goods for cash 13,000

               6.  Paid carriage on sales   150

               10. Cash purchases    10,000            

               15. Cash sales 12,500

               20. Paid laborers in cash   1,200

              25. Paid Electricity 50

              28. Cash sales   1,000

              30. Paid water bill in cash   45TQ

              30. Payment made for purchases 5,000

Post the above transactions in the ledger.

   
      DR                      CASH   ACCOUNT              ( L 1 )                                   CR

DR                        CAPITAL ACCOUNT  (2)                     CR

 
 

  DR                                    PURCHASES ACCOUNT (3)                           CR

 
 

     DR                                CARRIAGE ACCOUNT (4)                     CR

 
 

   DR                     SALES ACCOUNT   (5)                      CR

 
 

    DR                   LABORERS  ACCOUNT   (6)                     CR

 
 

DR                  ELECTRICITY ACCOUNT (7)               CR

 
 

     DR                    WATER   BILL ACCOUNT   (8)             CR

CREDIT TRANSACTIONS

A Credit transactions is a situations whereby goods are sold or bought but payments made later.
But the principles of book keeping requires that whenever the transactions made on Cash or on Credit, the records must be kept.

Sales on Credit 
When goods are sold  on Credit, the usual entries are Dr personal a/c to show the receipts of goods by the customers and credit sales a/c with the value of goods sold during that period.

Example:
Mr Juma bought goods costing Tshs 20,000 on credit from Hamida.

Solutions:

Double entry in the books Mr.Juma

 

Example.2

Mathew sold goods on credit to Janeth Tshs 40,000/=.

Double entry in the books of Mathew.

 
 

The Balancing of Accounts
Means that each side of the account is total and the difference between two sides (Dr & Cr) is ascertained.
Balance lies on the side which has greater for example if the credit side  is greater than debit side, the balance called credit balance.

The balance is written on the side has smaller/lesser total in order to make each side equal and the word balance c/d or c/f means balance carry down or forward of the trading period and then brought down or forward the balance by indicate the word (b/d & b/f) to the other side belong to the total as the example below shows:

Example:
record the following transactions in the ledger 2013.
  Jan    1  Commence business with Cash 60,000
           2  Purchased goods for Cash     30,000
           3  Paid office cleaners  2,000
           4  Sold goods for cash   40,000
           5  Paid wages      3,000
               8  Purchased goods on credit from Ally    20,000
         10  Sold goods to Aika for 25,000
         11  Paid Ally in his account  10,000
         12  Received from Aika    25,000
Enter the above transactions and balance the accounts at the end of the January and brought down the balance.

Solution