Bookkeeping basics - PART 4
double entry continued...
Now you know the basics of bookkeeping, including the basic idea behind double entry bookkeeping, let's move onto actually posting/recording our double entry transactions in a set of accounts.
On this page of our online bookkeeping course, you can expect to learn...
- More about double entry bookkeeping
- Posting debits and credits to the accounts
- Which transactions are debits and which are credits
- And some other things...
All of this will be covered in a single lesson.
Let's get started!
On this page of our online bookkeeping course, you can expect to learn...
- More about double entry bookkeeping
- Posting debits and credits to the accounts
- Which transactions are debits and which are credits
- And some other things...
All of this will be covered in a single lesson.
Let's get started!
lesson 1 (AND THE ONLY LESSON ON THIS PAGE) - NOMINAL ACCOUNTS EXPLAINED
A set of accounts (or books) is a compilation of individual accounts. These individual accounts cover all the different transaction types; expenses, assets, liabilities, sales, and equity. These individual accounts are often referred to as 'nominal accounts' or 't-accounts'.
As an example, there could be a nominal account for insurance expenses. Another for travelling expenses. All insurance expense transactions would be posted to the insurance expenses (nominal) account and all travelling expense transactions would be posted to the travelling expenses (nominal) account. So, a nominal account is an individual account used to record the financial transactions of a particular category. They are usually very specific. A well established business can have hundreds of nominal accounts covering various expenses, sales, assets, and liabilities.
The collection of an entity's nominal accounts can be referred to as the 'general ledger'.
Confused? Lets have a look at some examples. This should help...
Keep in mind the PEARLS and DEAD CLIC acronyms from the previous lesson.
A business has a sale of 125 received into the bank account
The bank is cash, so it is an asset. Increasing assets is debit, so...
Debit Bank Account 125
Sales are credit, so...
Credit Sales Account 125
The double entry for this transaction is debit the bank account and credit the sales account. This double entry will account for both the cash received into the bank account and the business sale.
A company makes a payment of 50 from the company bank account for insurance
Expenses are debit, so...
Debit Insurance Expense Account 50
The bank is an asset. Decreasing an asset is credit (because increasing an asset is debit), so...
Credit Bank Account 50
The double entry for this transaction is debit the insurance expense account and credit the bank account. This double entry will record both the cash paid and the expense.
As an example, there could be a nominal account for insurance expenses. Another for travelling expenses. All insurance expense transactions would be posted to the insurance expenses (nominal) account and all travelling expense transactions would be posted to the travelling expenses (nominal) account. So, a nominal account is an individual account used to record the financial transactions of a particular category. They are usually very specific. A well established business can have hundreds of nominal accounts covering various expenses, sales, assets, and liabilities.
The collection of an entity's nominal accounts can be referred to as the 'general ledger'.
Confused? Lets have a look at some examples. This should help...
Keep in mind the PEARLS and DEAD CLIC acronyms from the previous lesson.
A business has a sale of 125 received into the bank account
The bank is cash, so it is an asset. Increasing assets is debit, so...
Debit Bank Account 125
Sales are credit, so...
Credit Sales Account 125
The double entry for this transaction is debit the bank account and credit the sales account. This double entry will account for both the cash received into the bank account and the business sale.
A company makes a payment of 50 from the company bank account for insurance
Expenses are debit, so...
Debit Insurance Expense Account 50
The bank is an asset. Decreasing an asset is credit (because increasing an asset is debit), so...
Credit Bank Account 50
The double entry for this transaction is debit the insurance expense account and credit the bank account. This double entry will record both the cash paid and the expense.
A company has a sale of 375 into the company bank account
The bank is cash, so it is an asset. Increasing assets is debit, so...
Debit Bank Account 375
Sales are a credit, so...
Credit Sales Account 375
The double entry for this transaction is debit the bank account and credit the sales account. This double entry will account for both the cash received into the bank account and the sale.
A business makes a payment of 850 for a new office computer. The payment was made from the business bank account
An office computer is an asset. It is a piece of equipment that the business owns. Increasing assets is debit, so...
Debit Computer Asset Account 850
The bank is an asset. Decreasing assets is credit (because increasing assets is debit), so...
Credit Bank Account 850
The double entry for this transaction is debit the computer asset account and credit the bank account. This double entry will record both the cash paid from the bank account and the asset purchased.
The bank is cash, so it is an asset. Increasing assets is debit, so...
Debit Bank Account 375
Sales are a credit, so...
Credit Sales Account 375
The double entry for this transaction is debit the bank account and credit the sales account. This double entry will account for both the cash received into the bank account and the sale.
A business makes a payment of 850 for a new office computer. The payment was made from the business bank account
An office computer is an asset. It is a piece of equipment that the business owns. Increasing assets is debit, so...
Debit Computer Asset Account 850
The bank is an asset. Decreasing assets is credit (because increasing assets is debit), so...
Credit Bank Account 850
The double entry for this transaction is debit the computer asset account and credit the bank account. This double entry will record both the cash paid from the bank account and the asset purchased.
A company receives a bank loan of 5000, paid into the company bank account
The money received into the bank account is increasing the cash asset, so...
Debit Bank Account 5000
A loan is a liability. It is something that is owed. Liabilities are credits, so...
Credit Bank Loan Account 5000
The double entry for this transaction is debit the bank account and credit the bank loan account. This double entry will account for both the cash received and the loan owed.
3000 paid into the bank account by the owner as an investment (capital)
The money received into the bank account is increasing the cash asset, so...
Debit Bank Account 3000
Capital is a credit (it is actually like a liability, it is money owed from the business to the owner), so...
Credit Capital Account 3000
The double entry for this transaction is debit the bank account and credit the capital account. This double entry will record both the cash received and the investment owed back to the owner.
The money received into the bank account is increasing the cash asset, so...
Debit Bank Account 5000
A loan is a liability. It is something that is owed. Liabilities are credits, so...
Credit Bank Loan Account 5000
The double entry for this transaction is debit the bank account and credit the bank loan account. This double entry will account for both the cash received and the loan owed.
3000 paid into the bank account by the owner as an investment (capital)
The money received into the bank account is increasing the cash asset, so...
Debit Bank Account 3000
Capital is a credit (it is actually like a liability, it is money owed from the business to the owner), so...
Credit Capital Account 3000
The double entry for this transaction is debit the bank account and credit the capital account. This double entry will record both the cash received and the investment owed back to the owner.
Confused? Try watching the video below...
Are you still with me?
It you've got to the end of this lesson and you're still sane, then CONGRATULATIONS! You've got the potential to become a great accountant!
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