Financial Accounting
Transactions of a manufacturing company: debit and credit entries
Debit Credit
Financial Accounting
Analysis of transactions for M. Carter, wholesaler
Date Business transactions Amount Aspects
Financial Accounting
LEDGER ACCOUNTS (Read Supplement for detailed discussion)
L1 Cash
Date Particulars Page Debit Credit Balance
L2 Ownership interest
Date Particulars Page Debit Credit Balance
L3 Buildings
Date Particulars Page Debit Credit Balance
L4 Equipment
Date Particulars Page Debit Credit Balance
L5 Inventory (stock of goods)
Date Particulars Page Debit Credit Balance
Financial Accounting
L6 R. Busby
Date Particulars Page Debit Credit Balance
L7 Electricity
Date Particulars Page Debit Credit Balance
L8 Wages
Date Particulars Page Debit Credit Balance
L9 Cost of goods sold
Date Particulars Page Debit Credit Balance
L10 Sales
Date Particulars Page Debit Credit Balance
L11 R. Welsby
Date Particulars Page Debit Credit Balance
L12 Depreciation
Date Particulars Page Debit Credit Balance
Financial Accounting
Trial balance at 31 May for M Carter, wholesaler
Leger account title
Totals 56,000 56,000
Compare this with the financial statements and check that all figures correspond.
Financial Accounting
FLOW OF ACCOUNTING INFORMATION
TRANSACTIONS INVOLVING CASH
For example, Paying cash to ..
Paying cash to
Paying cash for ..
Receiving cash from .
Receiving cash from .
Receiving cash from .
TRANSACTIONS NOT INVOLVING CASH
Buying goods .. from suppliers
Returning unwanted goods to suppliers
Selling goods to customers
Receiving rejected goods from customers
EVENTS AFFECTING THE BUSINESS
D of non-current (fixed) assets
B... when customers fail to pay
Financial Accounting
Cash book
A cash book contains details of every transaction of cash received or cash paid. At the end of
Sales day book (sales journal)
When goods or services are supplied on credit, the company sends an INVOICE.
The sales journal contains details of every transaction of sale of goods and services on credit
terms. It shows the date, name of customer and invoiced amount.
Purchases day book (purchases journal)
When goods or services are taken on credit, the supplier sends an INVOICE.
Sales returns book (sales returns journal)
When the customer returns the goods or rejects the service, a CREDIT NOTE is given. This
Purchases returns book (purchases returns journal)
Financial Accounting
Journal
Any transaction or event that cannot be recorded in one of the above is recorded in the journal.
It shows the debit and credit entry; for example:
Dr Expense of depreciation £xxx
Cash received Cash paid
The cash book is itself a ledger account and so has debit and credit sides. The bookkeeping
entry is completed by a matching credit or debit in another ledger account. The column headed
L gives the reference of the matching ledger account.
For example, on 12 January, the business pays wages of £100. The transaction is recorded as:
DEBIT Expense of wages £100
CREDIT Asset of cash £100
Cash received Cash paid
W1 WAGES
Date Particulars Page Debit Credit Balance
Financial Accounting
Sales on credit are as follows:
Sales Journal page SJ6
Ref
Transfers to ledger accounts:
Make one debit entry in the ledger account of each customer (not part of double entry but
useful for controlling records of payment by each customer).
Make debit entry for total receivables (debtors) in General Ledger (Nominal Ledger).
Make credit entry for total sales in General Ledger (Nominal ledger).
J. BROWN (Br1)
Debit Credit
S. LENNOX (Le4)
Debit Credit Balance
P. WATSON (Wa2)
Debit Credit Balance
GENERAL LEDGER (ALSO CALLED NOMINAL LEDGER)
RECEIVABLES (DEBTORS) ACCOUNT (Ref GL 12)
Debit Credit Balance
A single page in the general ledger (nominal ledger) is the total of the separate pages in the
Receivables (debtors) ledger (sometimes, confusingly, called the Sales ledger).
GENERAL LEDGER (ALSO CALLED NOMINAL LEDGER)
SALES ACCOUNT (Ref GL 24)
Debit Credit Balance
Purchases on credit are as follows:
Purchases Journal page PJ8
Ref
Transfers to ledger accounts:
Make one credit entry in the ledger account of each supplier (not part of double entry but
useful for tracking records of payment to each supplier).
Make credit entry for total payables (creditors) in General Ledger (Nominal Ledger).
Make debit entry for total purchases in General Ledger (Nominal ledger).
L. GREEN (Gr2)
Debit Credit Balance
P. JARVIS (Ja1)
Debit Credit Balance
N. YATES (Ya3)
Debit Credit Balance
GENERAL LEDGER (ALSO CALLED NOMINAL LEDGER)
TOTAL PAYABLES (CREDITORS) ACCOUNT (Ref GL 15)
Debit Credit Balance
A single page in the general ledger (nominal ledger) is the total of the separate pages in the
Payables (creditors) ledger (sometimes, confusingly, called the Purchases ledger).
GENERAL LEDGER (ALSO CALLED NOMINAL LEDGER)
PURCHASES ACCOUNT (Ref GL 31)
Debit Credit Balance
Financial Accounting
Customer
Goods
£
Supplier
Goods
£
Sales Journal
Purchases Journal
L. Green £140
Day Books
Sales invoices Purchase invoices
Receivables
(Debtors) ledger Payables
(Creditors) ledger
J. Brown
Dr Cr Bal
300
S. Lennox
Dr Cr Bal
400
P. Watson
Dr Cr Bal
.. 150
P. Jarvis
Dr Cr Bal
(610)Cr
L. Green
Dr Cr Bal
(140)Cr
N. Yates
Dr Cr Bal
.. (160)Cr
General Ledger
(Nominal Ledger)
Sales
Dr Cr Bal
.. (850)Cr
Purchases
Dr Cr Bal
.. 910
Receivables
(debtors)
Dr Cr Bal
... 850
Payables
(creditors)
Dr Cr Bal
(910)Cr