Theory question 102
Double Entry and the Ledger2. (a) What is an account? (b) Explain the principle of double entry system. (c) In which books of prime entry would the following transactions be recorded? (i) A purchase on credit of goods for resale (ii) A cash purchase of a filing cabinet for office use (iii) Credit sale to a customer (iv) Correction of a posting error by which a new machine for use in the factory has been debited to purchases account
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(a) An account is a record in the ledger of all transactions of one kind or with one person, with a debit (left) side and a credit (right) side.
(b) Every transaction has two equal aspects, so it is recorded twice: the account receiving value is debited and the account giving value is credited with the same amount. Total debits therefore always equal total credits.
(c)(i) Purchases day book (purchases journal).
(ii) Cash book.
(iii) Sales day book (sales journal).
(iv) Journal proper (general journal).
Remember: debit the receiver, credit the giver.