Double Entry and Ledgers
Every transaction is recorded twice — once as a debit, once as a credit — so the accounting equation always stays in balance. Learning the debit/credit rules for each type of account is the single most important skill in this syllabus.
1. The Debit and Credit Rules
| Account type | Increase | Decrease |
|---|---|---|
| Asset | Debit | Credit |
| Liability | Credit | Debit |
| Capital | Credit | Debit |
| Expense | Debit | Credit |
| Income | Credit | Debit |
Purchases (an expense) increases → debit Purchases $500. Cash (an asset) decreases → credit Cash $500.
J. Patel (a trade receivable, an asset) increases → debit J. Patel $800. Sales (income) increases → credit Sales $800.
2. Balancing Off an Account
At the end of a period, each ledger account is “balanced off”: add up both sides, insert a balancing figure on the smaller side to make both sides equal, then bring that balance down (b/d) on the opposite side to start the next period.
Closing balance = 3,000 − 1,800 = $1,200 debit balance (cash remaining), brought down as the opening balance for next month.
3. Dividing the Ledger
In practice, the ledger is divided into sections for convenience: the sales ledger (individual trade receivable accounts), the purchases ledger (individual trade payable accounts), and the nominal/general ledger (all other accounts — assets, liabilities, capital, income, expenses). Many businesses now use digital ledger systems, which apply the same double-entry principles automatically.
- Forgetting that debit and credit have nothing to do with “good” and “bad” — they’re simply the left and right sides of an account.
- Applying the asset rule to expenses without checking — expenses behave like assets (debit to increase), which some students find counter-intuitive.
- Balancing off an account but forgetting to bring the balance down on the opposite side.
Key Vocabulary Recap
Syllabus Reference
Practice questions
Double Entry and Ledgers — Practice
Covers: debit/credit rules, recording transactions, and balancing accounts. 10 questions.
State whether an increase in each of the following is recorded as a debit or a credit: (a) an asset, (b) a liability, (c) capital.
State whether an increase in each of the following is recorded as a debit or a credit: (a) an expense, (b) income.
A business buys goods for $500 cash. State which account is debited and which is credited.
A business sells goods for $800 on credit to J. Patel. State which account is debited and which is credited.
A business pays rent of $300 by bank transfer. State which account is debited and which is credited.
A business receives a loan of $5,000 into its bank account. State which account is debited and which is credited.
A cash account has debit entries totalling $3,000 and credit entries totalling $1,800 during the month. Calculate the closing balance, and state whether it is a debit or credit balance.
Explain what is meant by “balancing off” a ledger account.
Explain the difference between the sales ledger and the purchases ledger.
Explain one advantage of a digital ledger system compared to a manual one.
Worked solutions
Show worked solutions
Double Entry and Ledgers — Practice: Solutions
Debit/credit for increase in asset, liability, capital.
Debit/credit for increase in expense, income.
Buy goods $500 cash.
Sell goods $800 on credit to J. Patel.
Pay rent $300 by bank transfer.
Receive loan $5,000 into bank.
Cash account: debits $3,000, credits $1,800.
Explain “balancing off” an account.
Sales ledger vs purchases ledger.
Advantage of digital ledger vs manual.
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