Wednesday, 9 September 2020

DOUBLE ENTRY FOR BEGINNERS - PART 1

 DOUBLE ENTRY FOR BEGINNERS - PART 1

SALES SCENARIOS- PART 1

 

Financial Accounts are built on the double entry principle which states that:

 

FOR EVERY DEBIT ENTRY, THERE MUST BE A CORRESPONDING CREDIT ENTRY;

 

So, in posting any transaction into your accounts, you always need to identify which account needs to be debited and which account needs to be credited.

 

A common acronym used to learn the double entry is DEAD/ CLIC

 

DEAD                                                                    CLIC

Debit: Expenses, Assets, Drawings                  Credit: Liabilities, Income, Capital

 

DEBIT TRANSACTIONS                                      CREDIT TRANSACTIONS

 

If any of these are increasing,                             If any of these are increasing,

you will need to debit the account                     you will need to credit the account

and vice versa, if it is decreasing                       and vice versa, if it is decreasing

 

 Let’s imagine some scenarios:

 1. If a customer buys products worth £230 from you and doesn’t pay immediately, i.e. credit sale. In such situation, a sale has taken place and a debtor has been established since the customer owes you. Invariably, sales have increased, as you have sold products and debtors (asset) has also increased.

 

 

                                                Accounts affected


 


                                        Sales                         Debtors

 

 

Double entry posting will be:

 

Dr- Debtors (assets)             £230

Cr- Sales (income)               £230

 


2. If a customer buys products worth £230 from you and pays immediately, i.e. cash sale. In such situation, a sale has taken place and cash has increased since the customer has paid you money. Invariably, sales have increased, as you have sold products and cash (asset) has also increased.

 

 

Accounts affected



                                        Sales                            Cash

 

 

Double entry posting will be:

 

Dr- Cash (asset)                               £230

Cr- Sales (income)                           £230

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