Recording transactions in the ledger (Unit 10)

Business transactions can be in the form of cash, bank and credit.

These transactions are recorded using the double entry system.

Double entry system (dual aspect principle) implies that each transaction affects 2 accounts:
one account has a debit entry (left side) and the other account has a credit entry (right side).

All accounts are kept in a book called the ledger.

A ledger is a book which consists of different accounts.

Format of an Account:
Dr Cr
Date Details Amount Date Details Amount
Rs Rs
----------------- Account

Cash transaction à is a transaction that occurs when money is received or paid in cash
immediately.
Recording cash transactions:
Money in à Debit Cash Account
Money out à Credit Cash Account

Bank transaction à is a transaction that occurs when money is received or paid by cheque.
Recording bank transactions:
Money in à Debit Bank Account
Money out à Credit Bank Account

Credit transaction à is a business transaction that is received or paid at a later date.

Credit transactions can be either credit purchases or credit sales.

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• Credit purchases are goods bought by a business but for which payment is done later
to suppliers/trade payables.
Credit purchases will affect 2 accounts:
Debit Purchases Account
Credit Trade payable Account (name of credit supplier)

• Credit sales are the sale of goods by a business but receipts are obtained later from
customers/trade receivables.
Credit sales will affect 2 accounts:
Debit Trade receivable Account (name of credit customer)
Credit Sales Account

Transactions Terms used

Started with Capital
Bought goods/purchased goods Purchases
Sold goods Sales
Bought/purchased Furniture Furniture
Bought/purchased Equipment Equipment
Bought/purchased Motor Vehicle Motor Vehicle
Paid electricity bills Electricity
Paid wages Wages
Paid salaries Salaries
Paid stationery Stationery
Withdrew ‘cash/cheque/goods’ for personal use/family Drawings
expenses

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Example for cash transactions:
Year Transaction Account to Account to
2008 be debited be credited
Jan 01 Started business with cash Rs30000
09 Bought goods for cash Rs10000
20 Paid electricity bills Rs1500 cash
24 Bought furniture for cash Rs12000
28 Withdrew cash for personal use Rs500
30 Sold goods for cash Rs 15000

Dr Ledger Cr
Date Details Amount Date Details Amount
Rs Rs

3
Q1:
Year Transaction Account to Account to
2008 be debited be credited
Mar 01 Started business with cash Rs50000
08 Sold goods for cash Rs20000
12 Paid wages in cash Rs15000
20 Bought Equipment for cash Rs9000
25 Purchased goods for cash Rs18000

Dr Ledger Cr
Date Details Amount Date Details Amount
Rs Rs

4
Example for bank transactions:
Year Transaction Account to Account to
2008 be debited be credited
Feb01 Started business with cash at bank Rs60000
13 Bought goods paying cheque Rs25000
17 Bought furniture Rs20000 by cheque
20 Paid insurance Rs12000 by cheque
24 Sold goods and received cheque Rs 15000
27 Withdrew cheque for family expenses

Dr Ledger Cr
Date Details Amount Date Details Amount
Rs Rs

5
Q2:
Year Transaction Account to Account to
2008 be debited be credited
May 01 Started business with cash at bank Rs45000
07 Paid advertising Rs7000 by cheque
12 Sold goods and received cheque of Rs5000
18 Bought Motor vehicle for Rs75000 by
cheque
24 Purchased goods by cheque Rs 15000
27 Withdrew cheque for family expenses
Rs1000

Dr Ledger Cr
Date Details Amount Date Details Amount
Rs Rs

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Example of credit transactions:
Date Transaction Account to Account to
be debited be credited
June 10 Bought goods on credit from a supplier Kosto
Rs 10000
11 Purchased goods from Tom Rs2000
12 Sold goods to Anna Rs5000
18 Bought goods on credit from Eric Rs24000
24 Sold goods on credit to Jessica Rs8000

Q3: State the account to be debited and credited for the transactions.
Date Transaction Account to Account to
be debited be credited
Apr 01 Started business with cash in hand Rs40000
03 Bought goods Rs5000 by cheque
05 Sold goods on credit to Jessy Rs16000
08 Purchased Delivery van Rs 20000 by cheque
12 Paid stationery in cash Rs1000
13 Bought goods on credit from Sam Rs12000
17 Paid wages by cheque Rs11000
26 Purchased goods from Laura Rs3500

Q4: State the account to be debited and credited for the transactions.
Date Transaction Account to Account to
be debited be credited
Oct 01 Started business with cash at bank Rs90000
03 Purchased goods on credit from a supplier,
Hannah Rs15000
05 Credit sales Rs75000 to customer Melina
10 Paid rent by cheque Rs7000
12 Sold goods on credit to Aisha Rs23000
13 Bought goods on credit from Young Bros
Rs50000

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15 Purchased furniture Rs5000 by cheque
18 Cash sales Rs30000
20 Paid insurance Rs 5000 cash
25 Paid telephone expenses Rs1500 by cheque