Accounting Basics – The Principle of Double Entry

May 23, 2018 | By admin4u | Filed in: Uncategorized.

This article is intended to help you understand one of the accounting bases, the double entry principle used to capture business transactions in the books of the entity. Double-entry accounting is a method in which each transaction is recorded in two separate accounts, ie as an account debit and credit on the other invoice. In other words, in the double entry principle, any transaction that adds value to the assets account also deducts the value deducted from the liabilities account – these transactions are loans. Conversely, any transaction that adds value to the source account results in depreciation of the asset account – these transactions are called loads

The double-entry principle is more commonly used than the one-off principle where all transactions are recorded on a single account. It is more commonly used because it prevents a number of errors and immediately warns the business of possible errors so that they can be timely repaired. Since loans and debts are always equal, ie the essence of accounting basics must be an equation between debits and credits if there is always a discrepancy between the value of the loans and the debits, it gives a warning to the business, an error occurred during the recording of the transaction business books. Thus, with double entry accounting principles, you can quickly and easily ensure that your invoices are always balanced. This principle is also useful for recording individual transactions and provides accurate and accurate data to users for decision-making on the entity.

Example 1

The following example of double entry is the principle. Cutting to Chase, a hairdresser, purchases the hairbrushes in bulk every quarter, purchases are made on a loan, ie the purchased cash will be paid after purchase. Most of the brushes will cost $ 250. Thus, every quarter, Cut to the Chase's accountant enters $ 250 into the debit account (plus the value of the liabilities) and a $ 250 entry on the assets account (added to the assets value). Below you can see how the entries look like:

D Inventory (assets) $ 250

C Payable Accounts

Example 2

The following example is the use of the brushes obtained in the cut to the chase hairdresser. Let's say that in the next quarter, the company used all the brushes it had acquired in its activities, that is, $ 250 was generated and the value of the assets decreased by $ 250. The accountant will add a $ 250 entry to the assets account as a credit and a $ 250 entry into the capital account as a charge, ie the expense as a decrease in equity. Below you can see how the entries look like: $ 196 D $ 250 These examples show that the principle of double entry is that for each entry on an account (ie, based on obligations or equity), an entry opposite to the original entry must be made in the opposite direction to the other (i.e. assets)

Source by Ana Orwel

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