to the sales or other income "T" account (increase income). It could also be the disposal of
a fixed asset - see later.
The best way to understand all this is by way of an example.
The following transactions occur, all in cash:
2.1.x5 Purchase stock for *ƒ*‹†2000
6.1.x5 Make sale for *ƒ*‹†3000
15.1.x5 Receive loan of *ƒ*‹†10000
19.1.x5 Purchase van for *ƒ*‹†9000
20.1.x5 Pay electricity bill of *ƒ*‹†400
We set up "T" accounts for cash, sales, loans, vehicles (fixed asset) & electricity. The
convention is to include the date of the transaction, brief narrative (e.g. where the opposite
entry is posted) & amount.
The cash "T" account is Credited with the 3 payments & Debited with the 2 receipts:
The "T" accounts for the income, expenses & fixed assets are also set up & the entries
corresponding to the above cash entries entries as follows:
*ƒ‚ Look how the cash transactions are reflected with opposite entries in the corresponding
"T" account. This is the basis of double-entry bookkeeping.
Closing off "T" accounts
Also notice how each account is balanced off - the carry-forward (c/f) amount makes the
total of each side equal (a balancing figure). Whenever the total of a "T" account is
referred to, it means the c/f amount. If the Dr (left) side is greater than the Cr (right) side, it
is a Dr balance (or vicetiversa).
The next section will look at how the entire bookkeeping system fits together.
4. Books of Prime Entry
The "books of prime entry" are those books in which the initial transactions are recorded.
Along with some memorandum records & "T" accounts, they form the whole bookkeeping
system as illustrated below.
You are strongly recommended to return to this section after Section 11 or 12, as you will