The double entry system
Double entry system — for every transaction, an entry is recorded in two accounts, as a debit or a credit.
- Debits are recorded on the left side of a journal entry.
- Credits are recorded on the right side of a journal entry.
| An increase in... | Shows |
|---|---|
| Debit | a gain in expenses & assets, and a loss of revenue & liabilities. |
| Credit | a gain in revenue & liabilities, and a loss of expenses & assets. |
The ledgers
- Sales ledger — contains the accounts of trade receivables.
- Purchases ledger — contains the accounts of trade payables.
- General (nominal) ledger — contains the accounts of everything else.