Session 3 Double entry bookkeeping
　　☆The duality concept and double entry bookkeeping
　　Duality concept: each and every transaction has a double effect on the business and the accounting equations.(A= C + L)
　　Rules of double entry bookkeeping:
　　● Each time a transaction is recorded, both effects must be taken into account.
　　● These two effects are equal and opposite such that the accounting equation will always prove correct.
　　Assets – Liabilities = Capital
　　● Traditionally, one effect is referred to as the debit side ( Dr.) and the other as the credit side of the entry (Cr.)
　　☆Ledger accounts, debits and credits
　　Ledger account:
　　● transactions are recorded in the relevant ledger accounts. There is a ledger
　　account for each asset, liability, revenue and expenses’ item, and for the owner’s capital.
　　● Each account has two sides: the debit and credit sides.
　　● The duality concept means that each transaction will affect two ledger accounts
　　● One account will be debited and the other credited
　　● Whether an entry is to debit or credit side of an account depend on the types of account and the transaction.
　　☆Recording cash transactions
　　Cash transactions:
　　Payment is made or received immediately.
　　Cheque payments or receipts are classed as cash transactions.
　　Double entry involves the bank ledger:
　　A debit entry is where funds are received
　　A credit entry is where funds are paid out.
　　☆Recording credit sales and purchases
　　Credit sales and purchases:
　　● are transactions where goods or services change hands immediately
　　● payment is not made or received until some time in the future.
　　Receivables and payables:
　　● Money that a business is owed is accounted for in the receivables ledger
　　● Money that a business owes is accounted for in the payables ledger.
　　Example:
　　Norris notes down the following transactions that happened to Avon in June.
　　1.Sell goods for $250 – the customer will pay in a month.
　　2.Pay $50 petrol for the delivery van.
　　3.Buy $170 goods for resale on credit.
　　4.Buy another $40 goods for resale, paying cash.
　　5.Buy a new computer for the business for $800.
　　Record these transactions using ledger accounts.
　　Solution:
　　1.Dr. Trade receivables　　　 250
　　Cr. Sales　　　　　　　　　 250
　　2.Dr. Petrol Expense　　　　　50
　　Cr. Cash in bank　　　　　　50
　　3.Dr. Purchase　　　　　　　　170
　　Cr. Trade payables　　　　　170
　　4.Dr. Purchase　　　　　　　　40
　　Cr. Cash in bank　　　　　　40
　　5.Dr. Computer　　　　　　　　800
　　Cr. Cash in bank　　　　　　800
　　● Perpetual and Periodic inventory system
　　Detailed record of inventory movement in and out of the business can be a very tedious and inefficient process. Such a system of keeping stock records is known as the perpetual system.
　　In a retail business with high stock turnover (i.e. the inventory move very fast) it is almost impossible to keep detailed records of every item of stock that is received and sold, and to recognize the profit on sale of very single item of stock, in such circumstance, the periodic inventory system is applied.
　　In other words, the inventory account remains stagnant through out the entire period.
　　An inventory count is performed at the end of the accounting period to determine the inventory held on hand.
　　Profit is established by taking sales less cost of goods sold, where
　　Cost of goods sold = Beginning inventory + Purchasing – Ending inventory