double-entry bookkeeping

Examples of double-entry bookkeeping in the following topics:

• A short history of accounting and double entry bookkeeping

  • "The treatise described double-entry bookkeeping—that for every credit entered into a ledger there must be a debit, a concept created by Florentine merchants and hailed by Goethe as "one of the most beautiful discoveries of the human spirit".
  • In my opinion, Goethe was exaggerating when he called double entry bookkeeping "one of the most beautiful discoveries of the human spirit".
  • At any rate, the discovery of double-entry bookkeeping was undeniably important, because, as Wikipedia explains:
  • Here is a simple example to give you a feel for the way that double entry bookkeeping works:
  • First, a single transaction affects two accounts (a double-entry).

• Inputs to Accounting

  • Inputs into accounting include journal entries, the bookkeeping process, and the general ledger.
  • In accounting, the two bookkeeping methods are the single-entry and double-entry bookkeeping systems.
  • For modern day purposes, it is most important to know the double-entry bookkeeping system.
  • The 'basic accounting equation' is the foundation for the double-entry bookkeeping system.
  • There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system.

• Defining Accounting

  • One important breakthrough took place around that time: the introduction of double-entry bookkeeping, which is defined as any bookkeeping system in which there was a debit and credit entry for each transaction, or for which the majority of transactions were intended to be of this form.
  • The earliest extant evidence of full double-entry bookkeeping is the Farolfi ledger of 1299-1300.
  • The oldest discovered record of a complete double-entry system is the Messari (Italian: "Treasurer's") accounts of the city of Genoa in 1340.
  • Therefore, they enjoy general recognition as a double-entry system.
  • Although Luca Pacioli did not invent double-entry bookkeeping, his 27-page treatise on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today.

• Double-Entry Bookkeeping

  • A double-entry bookkeeping system requires that every transaction be recorded in at least two different nominal ledger accounts.
  • A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.
  • In the double-entry accounting system, each accounting entry records related pairs of financial transactions for asset, liability, income, expense, or capital accounts.
  • The accounting entries are recorded in the "Books of Accounts".
  • There are two different approaches to the double entry system of bookkeeping.

• Debits and Credits

  • Credit and debit are the two fundamental aspects of every financial transaction in the double-entry bookkeeping system.
  • Debits and credits are at the heart of the double-entry bookkeeping system that has been the foundation stone on which the financial world's accounting system has been built for well over 500 years.
  • Debits and credits serve as the two balancing aspects of every financial transaction in double-entry bookkeeping.
  • Each transaction (let's say $100) is recorded by a debit entry of $100 in one account, and a credit entry of $100 in another account.

• Summary and discussion questions

  • Next we covered the advantages of the system of double-entry bookkeeping and how, together with ledgers and other accounting records, it enhances the accuracy of information maintained in an accounting system, whether it is manual or computer-based.
  • Explain the advantages of double-entry bookkeeping.
  • Do you agree with Goethe's description of double-entry bookkeeping as Goethe as "one of the most beautiful discoveries of the human spirit"?

• Types of Transactions

  • In double-entry bookkeeping, a sale of merchandise is recorded in the general journal as a debit to cash or accounts receivable and a credit to the sales account.
  • Fees for services are recorded separately from sales of merchandise, but the bookkeeping transactions for recording sales of services are similar to those for recording sales of tangible goods .

• Recording Sales

  • In bookkeeping, accounting, and finance, net sales are operating revenues earned by a company for selling its products or rendering its services.
  • In double-entry bookkeeping, a sale of merchandise is recorded in the general journal as a debit to cash or accounts receivable and a credit to the sales account.
  • Fees for services are recorded separately from sales of merchandise, but the bookkeeping transactions for recording sales of services are similar to those for recording sales of tangible goods.

• The Trial Balance

  • The trial balance is usually prepared by a bookkeeper or accountant.
  • The bookkeeper/accountant used journals to record business transactions.
  • The journal entries were then posted to the general ledger.
  • The trial balance is a part of the double-entry bookkeeping system and uses the classic 'T' account format for presenting values.
  • When the error is found, a correcting entry must be made.

• Reversing Entries

  • Reversing entries are journal entries made at the beginning of each accounting period.
  • Reversing entries help prevent accountants and bookkeepers from double recording revenues or expenses.
  • Reversing entries are most often used with accrual-type adjusting entries.
  • This adjusting entry records months A's portion of the interest expense with a journal entry that debits interest expense and credits interest payable.
  • The entry credits interest expense and debits interest payable.