1.2 The Accounting System

2026 Syllabus Objectives

By the end of this topic, you should be able to:

  1. Explain the principles of the double entry system to record business transactions
  2. Explain the accounting equation
  3. Describe the role of books of prime entry in recording business transactions
  4. Prepare ledger accounts
  5. Explain the purpose of a trial balance
  6. Discuss the advantages and disadvantages of maintaining full accounting records
  7. Explain the accounting concepts underpinning the preparation of accounts
  8. Describe the use of computerised accounting systems
  9. Discuss the advantages and disadvantages of introducing a computerised accounting system
  10. Explain how the security of data can be ensured within a computerised accounting system
  11. Use your understanding of the accounting system to evaluate information and make informed business decisions

1. Principles of the Double Entry System

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What is the accounting system?

An accounting system is a way of collecting, storing, and processing all the financial information of a business. It helps managers make decisions and report on how the business is doing.

What is double-entry bookkeeping?

Every time a business does something involving money — buying goods, paying wages, selling products — that is called a financial transaction. The key idea in accounting is that every transaction has two sides. Something is always received, and something is always given in return.

Double-entry bookkeeping is the system that records both sides of every transaction. Because there are always two entries (one for what is received, one for what is given), it is called "double entry."

Example: A business pays $500 cash to buy a desk.

  • Side 1: The business receives a desk (an asset enters the business).
  • Side 2: The business gives away $500 cash (money leaves the business).

Both sides must be recorded. This is what keeps the books balanced.

Debits and Credits

Each financial transaction is recorded in a ledger account (explained below). Every ledger account has two sides:

Debit Side (Dr)Credit Side (Cr)
Left-hand sideRight-hand side
Records what is received into an accountRecords what is given from an account

The simple rule:

  • Debit the account that receives something.
  • Credit the account that gives something.

Example: Buying a desk for $500 cash:

  • Debit Furniture account (the desk is received)
  • Credit Bank account (cash is given out)

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