Introduction to the Double‑Entry Accounting System
(Designed as concise study notes for beginners)
| Principle | Explanation |
|---|---|
| Dual effect | Every financial transaction affects at least two accounts: one side receives value, the other gives value. |
| Accounting equation | Assets = Liabilities + Owner’s Equity – the double‑entry system keeps this equation in balance after every transaction. |
| Debit & Credit | The two sides of each entry: • Debit (Dr) – left side of an account • Credit (Cr) – right side of an account • For every transaction, total debits = total credits. |
| Account Category | Normal Debit Balance | Normal Credit Balance | Typical Effect of Debit | Typical Effect of Credit |
|---|---|---|---|---|
| Assets | ✅ Debit | — | Increases asset value | Decreases asset value |
| Liabilities | — | ✅ Credit | Decreases liability | Increases liability |
| Owner’s Equity (Capital, Retained Earnings) | — | ✅ Credit | Decreases equity | Increases equity |
| Revenue | — | ✅ Credit | Decreases revenue | Increases revenue |
| Expenses | ✅ Debit | — | Increases expense | Decreases expense |
| Dividends/Drawings | ✅ Debit | — | Decreases equity | — |
(Mnemonic: DEALER – Debit Expenses, Assets, Losses; Credit Revenue, Liabilities, Equity.)
Date | Account Title | Ref. | Debit | Credit
---------------------------------------------------------
| Account to be Debited | | xxx.xx |
| Account to be Credited | | | xxx.xx
| (Explanation – brief description of the transaction)
Key points
Scenario:
On 15 May, the company purchases office equipment for $5,000 cash.
| Step | Action | Debit | Credit |
|---|---|---|---|
| 1. | Identify accounts | Office Equipment (Asset) | Cash (Asset) |
| 2. | Determine normal balances | Both are asset accounts → normal debit side. | |
| 3. | Apply rule – increase asset → debit; decrease asset → credit. | ||
| 4. | Journal entry | Office Equipment $5,000 | Cash $5,000 |
| 5. | Post to |