Principles of Double Entry | Jamb(UTME) Principles of Accounts

Principles of Double Entry

1. Every transaction affects at least two accounts.
2. Each debit entry has a corresponding credit entry.
3. The accounting equation remains balanced through double entry.
4. Assets increase with debits and decrease with credits.
5. Liabilities increase with credits and decrease with debits.
6. Income increases equity and is recorded as a credit.
7. Expenses decrease equity and are recorded as debits.
8. Double entry enhances accuracy in record-keeping.
9. It provides a complete financial picture of a transaction.
10. Detects errors through trial balance mismatches.
11. Forms the foundation of modern accounting systems.
12. Links transactions to source documents for verification.
13. Ensures accountability and transparency.
14. Helps trace transactions through the ledger system.
15. Facilitates preparation of financial statements.
    paragraph

Source Documents

16. Invoices document sales and purchases.
17. Receipts confirm cash payments received.
18. Credit notes record returns and allowances.
19. Debit notes adjust charges for returns to suppliers.
20. Bank statements show cash flow activity.
21. Cheque counterfoils record issued payments.
22. Petty cash vouchers track minor expenses.
23. Pay-in slips confirm deposits into bank accounts.
24. Timesheets support payroll calculations.
25. Purchase orders authorize buying decisions.
    paragraph

Books of Original Entry

26. Sales journal records credit sales transactions.
27. Purchases journal logs credit purchases.
28. Cash book records all cash receipts and payments.
29. Sales returns journal tracks goods returned by customers.
30. Purchases returns journal logs returns to suppliers.
31. General journal records non-regular transactions.
32. Petty cash book tracks small cash expenses.
33. Bank book maintains banking transactions.
34. Journal proper captures opening and closing entries.
35. Daybooks summarize daily transactions.
    paragraph

Accounting Equation

36. Accounting equation: Assets = Liabilities + Equity.
37. An increase in assets requires a corresponding increase in liabilities or equity.
38. A decrease in assets reduces either liabilities or equity.
39. Paying off liabilities decreases both assets and liabilities.
40. Owner's investment increases assets and equity.
41. Business expenses reduce assets and equity.
42. Borrowing funds increases both assets and liabilities.
43. Profits increase retained earnings and assets.
44. Losses reduce retained earnings and assets.
45. Drawings decrease assets and owner's equity.
    paragraph

Ledger and its Classifications

46. The general ledger contains all accounts.
47. The sales ledger records receivables from customers.
48. The purchases ledger records payables to suppliers.
49. The nominal ledger records income and expense accounts.
50. Ledger balances are used to prepare the trial balance.
51. Asset ledgers track property, equipment, and cash.
52. Liability ledgers track loans and payables.
53. Equity ledgers monitor owner's capital and drawings.
54. Revenue ledgers record sales and service income.
55. Expense ledgers capture operational costs.
    paragraph

Trial Balance

56. Trial balance lists all ledger balances at a point in time.
57. It checks the arithmetical accuracy of records.
58. Trial balance shows both debit and credit columns.
59. Errors may still exist despite a balanced trial balance.
60. Trial balance aids in financial statement preparation.
61. It highlights discrepancies in recording.
62. Trial balance provides a summary of financial position.
63. It verifies ledger posting accuracy.
64. It is prepared periodically, e.g., monthly or quarterly.
65. Trial balance confirms double-entry principle adherence.
    paragraph

Types and Correction of Errors

66. Errors of omission arise from skipped entries.
67. Errors of commission involve wrong account entries.
68. Errors of principle violate accounting rules.
69. Compensating errors offset each other.
70. Errors of original entry originate from incorrect source documents.
71. Transposition errors involve digit reversal.
72. Errors of duplication repeat an entry.
73. Errors of omission are corrected by recording the missed transaction.
74. Principle errors require correct classification adjustments.
75. Commission errors are fixed by posting to the correct account.
    paragraph

Suspense Account

76. Suspense accounts temporarily hold unbalanced amounts.
77. They assist in locating and correcting errors.
78. Suspense accounts should not remain open indefinitely.
79. They help prepare a trial balance despite uncertainties.
80. Suspense accounts maintain balance in the ledger.
81. They facilitate completion of financial statements.
82. Once errors are found, suspense accounts are cleared.
83. Suspense accounts improve bookkeeping efficiency.
    paragraph

Identification and Use of Source Documents

84. Invoices initiate sales and purchases entries.
85. Receipts are essential for cash transaction verification.
86. Debit notes correct billing errors.
87. Credit notes reflect customer returns.
88. Cheque stubs serve as proof of payment.
89. Bank statements reconcile cash book balances.
90. Purchase orders document authorization of purchases.
91. Timesheets ensure accurate wage calculations.
    paragraph

Relate Source Documents to Books of Original Entry

92. Sales invoices update the sales journal.
93. Purchase invoices populate the purchases journal.
94. Receipts update the cash book.
95. Credit notes inform the sales returns journal.
96. Debit notes are recorded in the purchases returns journal.
97. Bank statements support entries in the bank book.
    paragraph

Effect of Changes in Accounting Equation Elements

98. Asset increase with equity increase maintains balance.
99. Loan repayment decreases assets and liabilities.
100. Capital injection increases both assets and equity.
101. Expense payment reduces assets and equity.
102. Sale of goods increases assets and revenue.
103. Owner's withdrawal decreases assets and equity.
     paragraph

Role of Double Entry in Financial Transactions

104. Ensures both debit and credit effects are captured.
105. Facilitates complete transaction recording.
106. Helps identify errors through imbalance.
107. Provides a systematic financial record.
108. Supports preparation of accurate financial statements.
109. Builds stakeholder confidence in financial reports.
     paragraph

Extracting a Trial Balance from Ledger Accounts

110. List all debit balances first.
111. Follow with all credit balances.
112. Ensure totals for debits and credits agree.
113. Transfer ledger closing balances accurately.
114. Check for omissions or duplications.
     paragraph

Identifying and Correcting Errors in Accounts

115. Trace errors by reviewing ledger postings.
116. Cross-check source documents with entries.
117. Verify trial balance discrepancies.
118. Use error location to determine correction method.
119. Post correction entries in the appropriate accounts.
     paragraph

Correcting Errors Using Suspense Account

120. Post discrepancies to the suspense account temporarily.
121. Investigate and locate the error source.
122. Adjust the correct accounts to resolve errors.
123. Clear suspense account once all corrections are made.

I recommend you check my article on the following: