Home » Questions » The Double entry system - Debit and Credit





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   1. Why do we call double entry in accounting?

As we know every financial transaction has two aspects or effects. We have to record the both aspects of a transaction. Double entry simply means that each transaction should be recorded twice in the books of accounts.

For example purchased vechicle for $2500, In this case, vehicle should be recorded in vehicle account and cash in cash account. Therefore, there are double or two aspects of that transaction

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   2. What is a single entry system?

An accounting system wherein only one aspect of a transaction is recorded. Single entry only records the movements of cash as in the case of cash receipts and cash payments. In other words, single entry does not record any transaction which is not related to cash receipts or cash payments. For example $100 payment of cash to Mr. Z, will be recorded as cash payment without taking care of other aspect of this transaction that to whom we have made this payment

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   3. What is an account?

An account is a record or log of financial transactions of a specific item (item such as purchases, sales, commission etc) and contains the detail of transactions. In accounting, accounts are used to collect and record financial information. Examples of accounts are payable or creditor accounts, receivable or debtor accounts, cash accounts, bank accounts etc.

Record of debtors and creditors is maintained in debtor accounts and creditor accounts. Sales of goods are recorded in sales account and so on

We debit and credit an account to increase or decrease its balance. For example purchase of goods for $200 is debited to purchases account which implies that purchase account balance is increased by $200

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   4. What are debit and credit?

Debit and credit are Latin words. They are the two alphabets of accounting (like in English ABC). Debit and Credit represent the two aspects of a transaction which means they are the part of double entry system.

As we know every financial transaction has two effects or aspects. we have to record the both aspects of a transaction. Double entry (Debit and Credit) is simply implies that each transaction should be recorded twice in the books of accounts.

For example, a business has purchased vehicle for $1000. In this case, vehicle (Debit) should be recorded in vehicle account and cash (Credit) in cash account. Therefore, there are double aspects of this transaction

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   5. When to debit an account? How to debit?

As you know, accounting has five types of accounts (i.e. Assets, Expenses, Incomes, Liabilities and Capital), we debit an account when there is an increase or a decrease in Assets, Expenses, Incomes, Liabilities and Capital.

We Debit when there is:

Increase in Assets such as increase in cash, debtors, notes receivable, bank, machinery, equipments etc.

Increase in Expenses such as Purchase of goods or services, rent expense, employee wages or salaries, factory lease and depreciation expenses, heating and electricity expenses, repair and renewal of machinery and plant, freight and demurrage expenses etc.

Decrease in Incomes such as decrease in sales, commission income, rent income, discount received, profit on the sale fixed asset etc.

Decrease in liabilities such as decrease in A/C Payable or creditor, notes or bills payable, accrued interest and commission, bank loan, mortgage loan, issued bonds, unearned income, accrued tax etc.

Decrease in Capital such as drawings by owner(s) of the business

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   6. When to credit an account? How to credit?

Since accounting has five types of accounts (i.e. Assets, Expenses, Incomes, Liabilities and Capital), we credit an account when there is an increase or a decrease in Assets, Expenses, Incomes, Liabilities and Capital.

We Credit when there is:

Decrease in Assets such as decrease in cash, debtors, notes receivable, bank, machinery, equipments etc.

Decrease in Expenses such as decrease in purchase of goods or services, rent expense, employee wages or salaries, factory lease and depreciation expenses, heating and electricity expenses, repair and renewal of machinery and plant, freight and demurrage expenses etc.

Increase in Incomes such as decrease in sales, commission income, rent income, discount received, profit on the sale fixed asset etc

Increase in liabilities such as decrease in A/C Payable or creditor, notes or bills payable, accrued interest and commission, bank loan, mortgage loan, issued bonds, unearned income, accrued tax etc.

Increase in Capital such as investment of cash or assets (machinery, plant, vehicle etc.) to start a business, Injection of cash in a running business to enlarge its operations which is known as Fresh capital

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   7. What is the difference between double entries and accounts?

Double entry signifies that every transaction should be recorded twice in the accounts

For example purchased vehicle for $2500 should be recorded in vehicle account and cash account. Therefore, there are double or two aspects of this transaction

Whereas an account is a record or log of financial transactions of a specific item (item such as purchases, sales, commission etc.) and contains the detail of transactions. In accounting, accounts are used to collect and record financial information. Examples of accounts are payable or creditor accounts, receivable or debtor accounts, cash accounts, bank accounts etc.

Record of debtors and creditors is maintained in debtor accounts and creditor accounts. Sales of goods are recorded in sales account and so on

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   8. What is difference between credit purchases and cash purchases double entry?

In the case of cash purchases, we don’t have to make any entry related to supplier account or we don’t have to credit or debit the supplier account because we have already made the payment for cash purchase. Therefore, no need to record the detail of supplier.

In contrary to this, the detail of supplier or creditor needs to be recorded in case of credit purchases. Business has to record who is creditor or supplier and how much money is owed to that supplier to make payment at time and to show real financial view of business in the balance sheet

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   9. Why can’t we use only balance sheet to get the all details of accounts?

Balance sheet is a financial statement that summaries and reports the financial position of a business at a point in time. It does not supply enough information for business organization to make it useful to enter each transaction directly into the balance sheet.

For example: Seeing only balance sheet does not ensure that we can get all detail of debtor or creditors. The only way to get more information is by going through journals and ledger accounts

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   10. What is the meaning of debit?

Debit and credit are Latin words. They are the two alphabets of accounting (like ABC.. in English). Debit and Credit represent the two aspects of a transaction which means they are the part of double entry system.

As we know every financial transaction has two effects or aspects. We have to record the both aspects of a transaction. Double entry (Debit and Credit) simply implies that each transaction should be recorded twice in the books of accounts.

For example a business has purchased vehicle for $1000. In this case, vehicle (Debit) should be recorded in vehicle account and cash (Credit) in cash account. Therefore, there are double aspects of this transaction

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   11. What is a/c ?

In accounting, a/c is short for an account. An accountant uses the a/c to indicate an account. For example creditors a/c means creditors account, cash a/c implies that cash account and so on.

A/c is used rather than account since it’s much easier to write a/c. However, it is not compulsory to follow a/c convention.

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   12. How to debit and credit the stock or inventories account?

That’s pretty much simple, you just have to recall the debit and credit rules. Since stock or inventory is a current asset, any increase in stock should be debited to stock account and a decrease in stock is supposed to be credited to stock account.

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