ELEMENTS OF DOUBLE ENTRY BOOK KEEPING 

PANCHAYAT ACCOUNT ASSISTANT STUDY MATERIAL

ELEMENTS OF DOUBLE ENTRY BOOK KEEPING
ELEMENTS OF DOUBLE ENTRY BOOK KEEPING

 
 ELEMENTS OF DOUBLE ENTRY BOOK KEEPING 

•Double-entry bookkeeping underpins accounting 

•A way of systematically recording the financial transactions of a company so that each transaction is recorded twice. 

•Basic accounting equation: 

Assets = Liabilities + Equity + Profit (Income-Expenses) Assets + Expenses = Liabilities + Equity+ Income 

 

 
BASIC RULES 

1. For every transaction there will be a debit and credit entry. 

2. These debits and credits will be equal and opposite. 

3. E.g. in bank account all records are paid in on debit side and paid out on credit side.

 4. The choice of the right account side is the core of the art of bookkeeping 

 

• debiting an account - make an entry on the left-hand side of an account 

• crediting an account - make an entry on the right-hand side of an account 

 


 

 

DERIVED RULES 

Recall the basic accounting equation Assets + Expenses = Liabilities + Equity+ Income  

if a debit increases assets, then a credit counter item has to increase liabilities or owner‘s equity  

i.e. increases and decreases in assets and liabilities (or owner‘s equity) must be recorded opposite to each other!  

 :- Increases in assets are debited. Decreases in assets are credited. 

:-Increases in liabilities are credited. Decreases in liabilities are debited. 

OWNER EQUITY 

 Recall that owner‘s investments and revenues increase owner‘s equity, while owner‘s withdrawals and expenses decrease owner‘s equity. 

 Frequently separate accounts are kept for these items. 

 

Owner‘s Capital. 

This account is affected by, for example, owner‘s investment. 

 Increases in owner‘s capital are credited. Decreases in owner‘s capital are debited. Owner's Capital 

 

OWNER WITHDRAWLS 

• The owner may, for example, withdraw cash for personal use. It could be debited directly to Owner‘s Capital but a separate account is kept to determine total withdrawals. 

• Increases in owner‘s withdrawals are debited. Decreases in owner‘s withdrawals are credited. 


 

 

REVENUE AND EXPENSES 

• Revenues increase owner‘s equity, just as an increase in owner‘s capital does. Thus, debiting and crediting of a revenue account is the same as debiting and crediting of owner‘s capital account. Expenses, however, have the opposite effect. 

• Increases in revenues are credited. Decreases in revenues are debited. 

• Increases in expenses are debited. Decreases in expenses are credited. 

 

BALANCING OF THE ACCOUNTS 

When all entries completed, we need to balance off the accounts 

 

• All Income Statement items will be closed off 

• All Balance Sheet items brought forward 

• Balancing off enables us to: 

1. Prepare a trial balance 

2. Close down income and expense accounts 

3. Bring forward assets, liabilities and equity 

BALANCING OF THE CASH ACCOUNT 

1. Sum the entries on the larger side below the line 

2. repeat the sum below the line on the other side 

3. strike the balance: insert the amount missing such that the sums of entries on both sides are equal (i.e. solving the account equation) 

4. enter the counter item to the appropriate account e.g. Trial Balance 

 

 

DEBIT AND CREDIT BALANCE 

total of debit amounts > total of credit amounts debit balance total of debit amounts  debit amounts < total of credit amounts 

• note that a debit balance occurs on the credit side on account closing and vice versa. 

• normal balance = side (debit or credit) that increases the stock or flow represented in the account 

  THIS WAS ALL ABOUT ELEMENTS OF DOUBLE ENTRY BOOK KEEPING