Question

required 250-300 words. Q: What is the rule of double-entry accounting? Explain and provide an example.

Answer 1

The rule of double entry accounting is that the total of debit should be equal to total of credit. This mean every transaction would have two effects which would increase or decrease the accounts. For example, sale of goods on credit for $300. The general entry recorded would be accounts receivable debit for $300 and sales revenue credit for $300. This causes debit to be equal to credit which is $300. Accounts receivable is amount to be collected from customer and thus debited for increase while sales revenue is income account which is credited for increase. Another example could be company has paid rent expense of $100. The entry recorded is debit rent expense by $100 and credit cash for $100. This causes debit of $100 to be equal to credit of $100. Rent paid is expense account and thus debited for increase. Cash paid would lead to cash outflow and thus credited for decrease. General entries are first step in accounting process which are recorded based on the accounting rules. Double entry accounting is one of the basic of accounting. In case balance sheet does not tally at year end then this could be since debit is not equal to credit and then there has been error in recording of double entry. Double entry accounting leads to developing of accounting equation in which case total assets is equal to total liabilities plus equity. Double entry accounting would impact either assets, liabilities, income or expenses account of business. When general entry is recorded, business should make sure that debit is equal to credit in all the general entry recorded which would then mean that double entry accounting is correctly recorded.