#Double entry bookkeeping software#

In Example 1 given above, the acquisition However, if the effect of the transaction is toĭecrease the an account, then the mirror image of Figureįigure 3: Determining whether to debit or credit when an account is decreasing. When the LIABILITY is increasedĪs a result of a transaction, it will be credited. Therefore when an EXPENSE is increased as a result You should note in Figure 2, that each effect is true only when the account is increasing. On the Debit side while Liabilities and Income appear on the Credit side.įigure 2: Determining whether to debit or credit when an account is increasing You should also note that Assets and Expenses appear In Figure 1, at the top, are the two abbreviations These are the four different types of account. In the examples given above, you will note the words in bold - Asset, Liability, Expense, Income. The purpose of the diagram is to tell you when you shouldīe debiting and when you should be crediting when you are identifying the two effects that result from every transaction. To remember this diagram might be the key to understanding the double entry bookkeeping principle and your success in book-keeping. Now let's introduce to you a diagram (figureġ) that you must indelibly print into your brain! Your ability Would you like to try some double-entry bookkeeping exercises? Click Here Working out debits and credits

#Double entry bookkeeping software#

Of course, these days modern account software does the job for you but understanding the principle is important in understanding how accounting software works. You have to record one debit affect and one credit affect for each transaction. These transactions in the financial ledgers of the organisation. Your job (as an accountant or a bookkeeper) is to correctly record This is the debit affect.ĪSSET) also decreases by $1000. A LIABILITYaccount called 'Accounts Payable' decreases by.It owes to a supplier of $1000, the two effects are: As a result cash ASSET of Lots of Fun Pty Ltd decreases by $500.Lots of Fun Pty Ltd has increased wage EXPENSES by $500.This is the credit effect.Īnd pays that person a weekly wage of $500, the two effects Lots of Fun Pty Ltd has increased INCOME (which we might call 'Court Hire Fees').Result of the transaction the bank account of Lots of Fun Pty Ltd (and ASSET account) increases Lots of Fun Pty Ltd received $30 cash fromĪ customer for the hire of a tennis court, the two effects Refer to the figure 1: 'nature of accounts' below. At the same time it also incurs a LIABILITY to the bank of $5,000 (the bank loan).Lots of Fun Pty Ltd acquires an ASSET worth.$5,000 using a loan from the bank, the two effects are: Give an example of transactions from the books of the imaginary organisation This best way to explain the double entry bookkeeping principle is to Transaction there are two effects one debit effect and one credit effect. That students of accounting gain an understanding, from the outset, of this principle that is more than 500 years old.Įssentially, the principle is that for every financial Profoundly important in the world of accounting. The double entry bookkeeping principle is