Application Of The Double Entry Book Keeping On Ledger Accounts

Introduction:

In Financial Accounting, the double entry principle states that, 'for every debit entry, there must be a corresponding credit entry; and vice versa'.

This simply means that every business transaction is represented by 2 account items- one to be debited, and the other to be credited correspondingly.

The Rule:

For personal accounts, debit the debtor/receiver; credit the creditor/giver.

For nominal accounts, debit expenses & losses; credit income & profits.

For real accounts, debit asset in; credit asset out.

Illustration: 1. Paid wages by cash. 2. Sold goods on credit to Smith Smart.

Solution: In the first transaction, the 2 account items involved are wages & cash. Wages a/c being an expense item, is debited, while cash a/c, being asset given out, is credited. In the second case, Smith Smart, being a debtor is debited, while sales a/c is credited, being an income item.

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