Double Entry accounting Examples? It’s Easy If You Do It Smart

Double Entry accounting Examples? It’s Easy If You Do It Smart

What Everyone Must Know About Double Entry accounting Examples

Effectiveness in accounts

Double entry accounting transaction has two effects. For example, if someone purchases grocery goods from a store, he pays cash to the shopkeeper. This simple transaction has two effects from the aspects of both. The buyer and the seller. The buyer’s cash balance would decrease. On the other hand, the seller’s cash balance would increase by the price of grocery goods.

In addition, Both entries are affected by accounting records and effects in financial statements. This is the basic application of dual entry system in accounting. Without applying these concepts, accounting records seemed would not complete or even it will be the partial view of the accounting perspectives. Suppose that, furniture purchased for a company but accounting records do not show whether the furniture cash or on credit. This information we have gained from records of accounting. This would be effects both side transactions and it would be accounted for.

 

Double entry accounting concept

Example and solution

 

Ted Wood is a CPA charter-holder. In 2011, he launched a business which named Ted petroleum. Here’s some transaction has given below;

  • On 1 October 2011, he set aside $50,000 for his business. This will be reflected in double entry accounting as follows

 

     Cash                      $50,000

Capital, Ted Wood        $50,000

 

On 9 October 2011, he hired an Accountant to maintain Accounts for $5,000. No need journal entry because it’s just started off an agreement and no transaction of goods or services has shown yet.

 

  • On 30 October 2011, Accountant completed his accounts and sent a report. Ted paid him immediately, which is showed below;

 

Accountant salary $ 5,000

              Cash                      $5,000

.

 

  • The Accountant analysis was promising. It inspired Ted to put in $100,000 more money and purchase some important equipment worth $50,000 on 2nd November

 

             Cash                          $100,000

                     Capital, Ted wood                    $100,000

 

The purchase of equipment is shown as follows:

 

         Equipment                $50,000
Accounts payable                      $50,000

 

  • These transactions change equations, it increases to cash and Owner’s equity $100,000 and it recommended new asset (equipment) value $50,000 and it’s accelerated liability (accounts payable) value $50,000.
    The equipment seller is paid on 10 November 2011.

Accounts payable        $50,000
Cash                                    $50,000

 

  • A Financial analyst employed on 1 December 2011 for $7,000 a month and a $25,000 signing bonus, and a working space arranged for $3,000 a month paid in advance. The following journal entry is made on 1 December.

 

Salaries expense           $25,000
Prepaid rent                    $3,000
Cash                                       $28,000

 

  • On December 2011, adjusting entries are set up to recognize the rent expense, pay salary to the Financial Analyst and noticed monthly depreciation on the equipment (useful life is 20 months).

 

Rent expense                 $3,000
Prepaid rent                          $3,000

.

 

Salaries expense            $7,000
Cash                                        $7,000

 

 

Depreciation expense ($50,000/20)      $2,500
Accumulated depreciation (equipment)               $2,500

 

Principal Formula:

Dual entry system based on the key formula and it is well established in the accounting experts and firms. Nowadays, every one uses this formula which is given below:

Assets (A) =Liabilities (L) +Owner’s equity (O. E)

Method Proved

At the end of first quarter, account balances are shown bellows:

Cash balance = $50,000 – $5,000+$1, 00,000-$50,000-$28,000-$7,000 = $60,000
Prepaid rent balance = $3,000-$3000=0
Equipment balance = $50,000 – accumulated depreciation ($2,500) = $47,500
Liabilities balance = 0
Owner’s equity balance = opening balance ($1, 20,000) – rent expense ($3,000) – salaries expense ($7,000) – depreciation expense ($2,500) = $1,07,500
Accounting equation at the end of the quarter: cash ($60,000) + equipment ($47,500) = shareholders’ equity ($107,500).

So, Assets ($1,07,500)=Liabilities($0)+Owner’s equity($1,07,500).
The balance carried forward balance sheet (statement of financial position) when a complete financial statement is prepared.

 

Generally, the two effects of an accounting are known as the golden rules of Accounting Debit and Credit. The double entry system is underlying to fundamental that for every transaction equal to be Debit and Credit entries. This is known as the Dual entry Principal. but there are the misconceptions about this formula, we mixed it and confused the single entries and double entries which one it would be applied. Read more for details about it.

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