DOUBLE ENTRY SYSTEM
The most scientific and reliable method of accounting is the Double Entry System. One must have a clear conception of the nature the transaction to understand the double-entry system.
Every transaction involves two parties or accounts – one account gives the benefit and others receives it.
It is called a dual entity of transaction.
Parang sa relationship din ‘yan. Dapat balance. Hindi pwede ang one-sided love dahil hindi magwo-work ang relationship. For the future accountants, after learning the whole concept of accounting, you will learn how to balance everything in life. Not only the numbers.
Back to the topic, kung ano ang binigay mo, may kapalit. ‘Yan ang main concept ng double entry. Kaya siya tinawag na double.
For example, bumili ka ng columnar book. Nagbigay ka ng pera kaya ka binigyan ng columnar book. As simple as that.
To record the transaction, you will debit office supply (expense) and credit cash (asset). Nag decrease ang cash natin kaya credit ang cash. On the other hand, nag increase ang expense natin kaya debit. Hope you find this sample useful.
For further understanding, here’s another sample in different scenarios.
First scenario: John bought refrigerator in cash amounting to 50,000php as additional equipment in his frozen meat business.
Dr Equipment 50,000.00
Cr Cash 50,000.00
To record the purchase of refrigerator.
Second scenario: John bought refrigerator as additional equipment in his frozen meat business. Payment will be made in monthly installments amounting to 5,000.00 in one year and a down payment of 10,000.00.
Dr Equipment 70,000.00
Cr Cash 10,000.00
Cr Non-trade Payable 60,000.00
To record purchase of refrigerator.
After one month, the entry would be:
Dr Non-trade Payable 5,000.00
Cr Cash 5,000.00
To record the payment of first installment.
Third scenario: John bought four refrigerator in his appliance business amounting 30,000.00 each in 50% cash and 50% installment in one year and three months.
Dr Inventory 120,000.00
Cr Cash 60,000.00
Cr Trade Payable 60,000.00
To record purchase of refrigerator.
Since it’s my comeback this year, I will leave the three different scenarios as your assignment. You can private message me your answer if you’re not confident; or comment down if you want some discussions with your co-students. But either way, I will answer both with explanation.
Questions:
1)Differentiate the three scenarios with the connection of the double-entry system.
2)Tell whether the refrigerator in the three different scenarios is current or non-current (state some basis).
3)Tell whether the Payables in the three different scenarios is current or on-current (state some basis).
Ps. I will wait for your answers so that we can proceed on the next topic.
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Introdution to Accounting
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