Workshop 4: Double entry System (part 1)

Define Financial Accounting 

Is a process of identifying, measuring, recording, classifying, summarizing and communication information to users to enable them to make informed judgements and decisions involves: Input, process, output

Define Source documents

A written document that provides details of transactions and the evidence that the transaction has taken place. General features: Title, Number, Date, Name and Address, Nature of transaction, Amount, Term and condition, authorised signature Etc.

Why source document are important?

They provide evidence or proof that a transaction has occurred.

They are used as past of a process to record information, i.e. past transactions, into journals.

they are required for audit purposes

Types of source Documents 

• nvoice → A bill a seller sends to a buyer showing what was sold, the price, and how much is owed.

• Delivery order/note → A document that comes with goods to confirm what was delivered (like a checklist of items).

• Official receipt → Proof that money was paid, usually given after payment.

• Debit note → A note a buyer sends to a seller when returning goods or asking for a reduction in price (like “you owe me this amount back”).

• Statement of account → A summary sent regularly showing all transactions between two parties:

  • Accounts receivables = money others owe you.

  • Accounts payables = money you owe others.

• Cheque → A written order telling a bank to pay someone a certain amount of money from your account.

• Bank paying-in slip & bank statements →

  • Paying-in slip = a small form you fill when depositing money in the bank.

  • Bank statement = a report from the bank showing all the money that went in and out of your account during a period.

Accounting Books

Account booking (or bookkeeping) is the process of recording all the financial transactions of a business in the accounting books using source documents.

In super simple terms: it’s writing down every sale, payment, receipt, or expense so you know exactly where money comes from and goes.

It’s like keeping a detailed diary of your business money. includes general journaling and ledgers.

General Journaling

is the process of recording all financial transactions in the general journal in chronological order.

In simple words: it’s the first place a business writes down every money movement, showing:

• What happened (description)

• Which accounts are affected

• How much is debited and credited

Ledgers 

Ledgers are books (or digital records) where all transactions are grouped by account.

• Instead of writing transactions day by day like in journals, ledgers show the totals and balances for each account (e.g., cash, sales, rent).

• They make it easy to see how much you have or owe in each category.

Think of it like: journals = daily diary, ledgers = organized folders for each type of money.

Posting

Posting is the process of transferring transactions from the journal to the ledger.

• You first record a transaction in the journal (general journaling).

• Then you post it to the relevant ledger account so each account shows its updated balance.

Think of it like: journal = raw notes, posting = filing those notes into the right folders (ledgers).

Types of General Journaling 

• Cash book → Records all cash received and paid.

• Petty cash book → Records small, everyday expenses paid in cash.

• Sales day book → Records all credit sales (sales where customers will pay later).

• Purchases day book → Records all credit purchases (things bought on credit).

• Sales returns day book → Records goods returned by customers.

• Purchases returns day book → Records goods you returned to suppliers.

Types of legers

• Accounts receivable ledger → Shows money customers owe you.

• Accounts payable ledger → Shows money you owe suppliers.

Super simple: general = everything, receivable = money coming in, payable = money going out.

Double entry system

A system Where every accounting transaction affects at least two accounts

Dual aspect ( duality) there must be at least one debit and one credit entry

Account 

A place where all information referring to a particular asset, liability, income, capital(equity) and expense is recorded. 

What is a debit and a credit

• Debit (Dr) → something coming in or an increase in assets/expenses; or a decrease in liabilities/equity/income.

• Credit (Cr) → something going out or an increase in liabilities/equity/income; or a decrease in assets/expenses.

ALICE debit/credit rules

Double entry system – basic rules:

Assets and Expenses

• When increase → Dr

• When decrease → Cr

Liabilities, Income and Capital (Equity)

• When increase → Cr

• When decrease → Dr

T account 

A T-account is a simple way to visualize an account in accounting.

• It’s called a “T” because it looks like the letter T.

• Left side = Debit, Right side = Credit.

• You use it to see increases and decreases in a specific account clearly.

Think of it like a mini ledger for one account.

Journal entry

A record of a financial transaction in the accounting books, showing which accounts are debited and credited, along with the date and a brief description.

Charts of Accounts

A complete list of all accounts used by a business to record transactions, organized by type (assets, liabilities, equity, revenue, expenses).
Example: Cash, Accounts Receivable, Sales Revenue, Salaries Expense.

Trial balance

trial balance is a listing, divided into debit and credit column, of the balances of all accounts

in a double entry system as shown in the general ledger. to check if they are mathematically correct

Balance day adjustments 

Adjustments made at the end of an accounting period to ensure revenues and expenses are recorded in the correct period.
Examples: Accrued expenses, prepaid insurance, depreciation.

Transactional analysis

The process of examining each business transaction to determine which accounts are affected and whether they should be debited or credited.
Purpose: Ensures accurate recording in the journal.