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๐ Double-Entry Bookkeeping โ Notes with Journal Entries & Examples
- Introduction to Double-Entry Bookkeeping Double-entry bookkeeping is the system of recording transactions where every transaction affects at least two accounts: ๏ท Debit (Dr) โ What the business receives. ๏ท Credit (Cr) โ What the business gives. ๐ Golden Rule: โFor every debit, there is an equal and opposite credit.โ
- Rules of Debit and Credit Account Type Debit (Dr) Increases Credit (Cr) Increases Assets โ
Increase โ Decrease Liabilities โ Decrease โ
Increase Equity/Capital (^) โ Decrease โ
Increase Revenue/Income โ Decrease โ
Increase Expenses โ
Increase โ Decrease
- Format of a Journal Entry Date Particulars Debit (Dr) Credit (Cr) yyyy-mm-dd Account to be debited xxx To Account to be credited xxx (Brief explanation)
- Examples with Journal Entries Example 1: Owner invests cash into business ($10,000) ๏ท Cash (Asset) increases โ Debit ๏ท Capital (Equity) increases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 01 Cash A/c 10, To Capital A/c 10, (Owner invested cash) Example 2: Business purchases furniture for cash ($2,000) ๏ท Furniture (Asset) increases โ Debit ๏ท Cash (Asset) decreases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 02 Furniture A/c 2, To Cash A/c 2, (Furniture purchased)
Example 5: Business buys inventory on credit ($3,000) ๏ท Purchases (Expense) increases โ Debit ๏ท Accounts Payable (Liability) increases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 05 Purchases A/c 3, To Accounts Payable A/c 3, (Inventory bought on credit) Example 6: Business takes a bank loan ($5,000) ๏ท Cash (Asset) increases โ Debit ๏ท Loan Payable (Liability) increases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 06 Cash A/c 5, To Bank Loan A/c 5, (Loan received)
Example 7: Paying salary to employees ($1,200) ๏ท Salary Expense increases โ Debit ๏ท Cash decreases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 07 Salaries Expense A/c 1, To Cash A/c 1, (Salaries paid) Example 8: Business buys insurance ($600) ๏ท Insurance Expense increases โ Debit ๏ท Cash decreases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 08 Insurance Expense A/c 600 To Cash A/c 600 (Insurance premium paid)
Example 11: Business receives cash from a debtor ($1,000) ๏ท Cash (Asset) increases โ Debit ๏ท Accounts Receivable decreases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 11 Cash A/c 1, To Accounts Receivable A/c 1, (Received from debtor) Example 12: Business declares ownerโs withdrawal ($700) ๏ท Drawings (Equity reduction) increases โ Debit ๏ท Cash decreases โ Credit Date Particulars Debit (Dr) Credit (Cr) 2025 - 01 - 12 Drawings A/c 700 To Cash A/c 700 (Owner withdrawal)
๐ Practice Problems โ Double-Entry Bookkeeping Practice Problem 1 A business purchases office supplies worth $500 on credit. ๐ Record the journal entry. Practice Problem 2 The business pays the electricity bill of $300 in cash. ๐ Record the journal entry. Practice Problem 3 A customer pays the business $2,500 in cash for goods previously sold on credit. ๐ Record the journal entry.
