ZIMSEC O-Level Principles of Accounting (4051)

Ledger Accounts and Double Entry: notes

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The Dual Aspect

Dual aspect: every transaction affects two accounts, so it always has two sides.
Double entry: each transaction is recorded as one debit and one credit of the same amount.
Example: Paid $500 cash for office supplies. Dr Office Supplies $500, Cr Cash $500.

Debit (Dr): the left side of an account. It increases assets, expenses and drawings, and decreases liabilities, capital and income.
Credit (Cr): the right side of an account. It increases liabilities, capital and income, and decreases assets.
Example: Owner puts $1,000 cash into the business. Dr Cash $1,000, Cr Capital $1,000.

Personal accounts: accounts for people or businesses, such as debtors and creditors.
Real accounts: accounts for things owned, such as cash, bank, equipment and stock.
Nominal accounts: accounts for income and expenses, such as rent, wages and sales.
Example: Paid rent $300 in cash. Dr Rent (nominal) $300, Cr Cash (real) $300.

Books of original entry: journals where transactions are first recorded, such as the sales journal, purchases journal and cash book.
Posting: copying these entries into the correct accounts in the ledger.
Balancing an account: add up each side, find the difference, and carry it down as the balance.
Example: Debit side $800, credit side $300. Balance $500 debit.

Capital: the owner's investment in the business, recorded on the credit side.
Drawings: money or goods the owner takes for personal use. Dr Drawings, Cr Cash.
Returns: a customer returning goods is a sales return, debited to Sales Returns. Returning goods to a supplier is a purchases return, credited to Purchases Returns.
Fixed assets: long lasting items like equipment, bought for use in the business. Example: Bought equipment for $2,000 cash. Dr Equipment $2,000, Cr Cash $2,000.