Chapter 3 Double Entry System (Part 2) 6.1 Short-cut to remember - PDF document

BMS Chapter 3 Double Entry System (Part 2) 6.1 Short-cut to remember double entry principle When increasing: Assets Debit Expenses Liabilities Credit Capital Income Review Questions – 4.2, 4.3A HND - FA - Dhanushka Abeysekara 1

BMS 7 Balancing – off accounts Step 1 15,330 1,605 Bank Cash 15,000 Rent 80 SP 330 Furniture 1,500 Advertising 25 Step 3 Bal C/f 13,725 15,330 15,330 Step 2 Closing balance is named as Balance carried forward (Bal c/f) For Income & Expenses closing balance is named as Profit or loss (P or L) Because Income & Expenses are transferred to Profit or loss (P or L) 7.1 Closing balance and opening balance Bank Bal b/f 13,725 As illustrated above the closing balance of one period becomes the opening balance of the following period Remember that balances of income and expenses are not carried forward to the following period. They are transferred to profit or loss HND - FA - Dhanushka Abeysekara 2

BMS 7.2 Debit balance or credit balance? Debit balance = Debit side > Credit side Credit balance = Credit side > Debit side Closing balance in the credit side = Debit balance Closing balance in the debit side = Credit balance Opening balance in the credit side = Credit balance Opening balance in the debit side = Debit balance Illustration – Debit balances and credit balances for example 1 $ Debit / Credit Capital 20,000 Credit Cash 1,760 Debit Bank 13,725 Debit Purchases 8,900 Debit JM 2,000 Credit ERD 3,000 Credit Wages 170 Debit Rent 80 Debit Sales 10,200 Credit Furniture 1,500 Debit SP 250 Debit Fittings 600 Debit Advertising 25 Debit KM 8,090 Debit Drawings 100 Debit HND - FA - Dhanushka Abeysekara 3

BMS Readings Study text – Chapter 5 – 5.1, 5.2 HND - FA - Dhanushka Abeysekara 4