2.1 The Double Entry System of Book-Keeping

2026 Syllabus Objectives

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

  1. Outline the double entry system of book-keeping
  2. Process accounting data using the double entry system
  3. Prepare ledger accounts
  4. Post (record) transactions to the ledger accounts
  5. Balance ledger accounts and make transfers to financial statements
  6. Interpret ledger accounts and their balances
  7. Recognise the division of the ledger into the sales ledger, the purchases ledger, and the nominal (general) ledger

Note: You do not need to explain or use folio columns, or use three-column running-balance accounts.

1. The Double Entry System — What Is It?

https://cambridgeassistant.com

The Basic Idea

Every time a business does something with money — buying goods, paying a bill, receiving cash — this is called a transaction. The double entry system is a method of recording every transaction in two places at the same time.

This works because of the accounting equation:

Assets = Liabilities + Capital

  • Assets are things the business owns (e.g., cash, inventory, equipment).
  • Liabilities are things the business owes (e.g., bank loans, money owed to suppliers).
  • Capital is the owner's investment in the business.

This equation is always balanced. Every transaction changes at least two parts of the equation, so recording it in two places keeps the books balanced.

Why Use Double Entry?

The double entry system is used because it:

  • Makes it straightforward to prepare financial statements (like the income statement and statement of financial position)
  • Helps calculate profit or loss accurately
  • Reduces the chance of fraud
  • Makes information easy to access for banks or lenders
  • Helps find errors because both sides of every transaction must always equal each other

The Two Entries: Debit and Credit

Every transaction is recorded twice — once as a debit entry and once as a credit entry:

  • The debit entry is recorded on the left side of an account (sometimes labelled Dr)
  • The credit entry is recorded on the right side of an account (sometimes labelled Cr)

The golden rule: for every debit entry, there must be an equal credit entry somewhere else.

Sign in to view full notes