Introduction to Double Entry Bookkeeping

Double entry bookkeeping is a method for businesses to record financial transactions.
Every asset, liability, income, and expense has an account.
Each transaction results in two accounting entries: a debit and a credit.
Computerized systems automate double entry, but understanding the underlying principles is essential for error correction.
The course assumes a manual system for illustrative purposes.

A T account is named after it's shape.
It's shaped like a T.
The account name (such as electricity, telephone, or motor vehicle) appears at the top.
The left side is the debit side, and the right side is the credit side.
Every transaction results in entries to two different accounts.
Total debits must equal total credits if they do not, an error has occurred.

DEAD CLIC is a mnemonic to remember which accounts to debit and credit:
- Debit: Increases Expenses, Assets, and Drawings
- Credit: Increases Liabilities, Income, and Capital
Drawings refer to money taken out of the business by the owner.
Switching sides (debiting a liability or crediting an asset) will decrease the account balance.

Debit receivables (increase in asset - customers owe money).
Credit sales (increase in income).
Receivables are also referred to as Debtors, but are called Receivables in your accounts.

Debit purchases (increase in expense).
Credit payables (increase in liability - money owed to suppliers).
Payables are also referred to as Creditors, but are called Payables in your accounts.

After completing the double entry, post the entries to the respective T accounts.
The narrative in each account should refer to the other side of the entry.

Introduce $5,000$ cash as capital:
- Debit cash, credit capital.
- Cash account: Debit $5,000$ , narrative "capital".
- Capital account: Credit $5,000$ , narrative "cash".
Purchase goods on credit for $2,000$ :
- Debit purchases, credit payables.
- Purchases account: Debit $2,000$ , narrative "payables".
- Payables account: Credit $2,000$ , narrative "purchases".
Paid rent $500$ :
- Debit rent, credit cash.
- Rent account: Debit $500$ , narrative "cash".
- Cash account: Credit $500$ , narrative "rent".
Electricity $200$ :
- Debit electricity, credit cash.
- Electricity account: Debit $200$ , narrative "cash".
- Cash account: Credit $200$ , narrative "electricity".
Purchase car for cash $1,000$ :
- Debit car, credit cash.
- Car account: Debit $1,000$ , narrative "cash".
- Cash account: Credit $1,000$ , narrative "car".
Sold half the goods on credit to Tisch for $1,750$ :
- Debit receivables, credit sales.
- Receivables account: Debit $1,750$ , narrative "sales".
- Sales account: Credit $1,750$ , narrative "receivables".
Drew $300$ for his own expenses:
- Debit drawings, credit cash.
- Drawings account: Debit $300$ , narrative "cash".
- Cash account: Credit $300$ , narrative "drawings".
Sold goods for cash:
- Debit cash, credit sales.
- Cash account: Debit cash, credit sales.
- Sales account: Two entries, one to receivables and one to cash.