Double-Entry Bookkeeping and the Books of Original Entry
Duality in practice
Every transaction is entered twice: a debit and a credit of equal value. Learn the rules by account type. For assets and expenses, debit increases and credit decreases. For liabilities, capital and income, credit increases and debit decreases.
Books of original entry
Transactions are first recorded in the book that suits the source document:
- Sales day book – credit sales, from invoices issued.
- Purchases day book – credit purchases, from invoices received.
- Sales returns day book – goods returned by customers, from credit notes issued.
- Purchases returns day book – goods returned to suppliers.
- Cash book – receipts and payments, including bank.
- General journal – everything else: opening entries, corrections, purchase of a fixed asset on credit.
Traps
- Putting cash sales in the sales day book. Cash sales go through the cash book; only credit sales belong in the day book.
- Recording a purchase of a delivery van in the purchases day book. It is a fixed asset, so it goes in the journal.
- Reversing the returns books: returns inwards are goods coming back from customers.
- Forgetting that the day books are not ledger accounts; they are lists that are posted to the ledger in total.
Rule of thumb
Ask two questions: which accounts are affected, and is each one increasing or decreasing? Then apply DEAD CLIC: Debit Expenses, Assets, Drawings; Credit Liabilities, Income, Capital.