Double entry and accounting system

Data Source: Source documents provide documentary evidence of existence of an accounting event. Every journal should provide reference to source documents. Different types of business documentation includes quotation, sales order, purchase order, goods received note, goods dispatch note, invoice statement, credit note, debit note, remittance advice, receipt. Source documents content relevant information for which they are produced. E.g. A purchase order contains supplier information, quantity, product quality, price, method of payment and delivery which is send to supplier as a request for supply of required product. Source document used by different organisation may vary in layout and contents.

The duality concept – Each transaction affects financial statement in two ways. OR Each Transaction affects two ledger accounts.

Dr (left or debit  side/+used in spreadsheet)= Cr (right or credit side/ - used in spreadsheet)

Increase	Debit	Credit	Credit	Credit	Debit
Account	Assets =	Liabilities +	Capital +	Revenue -	Expenses
Decrease	Credit	Debit	Debit	Debit	Credit

Understand and apply the accounting equation: The effect is equal and opposite such that the accounting equation (Assets = Liabilities + Capital) always holds true.

Assets = Liabilities + Capital

i.e. Assets – Liabilities = Capital

Books of Prime Entry – Record transactions

Sales Journal – Record credit sales

Sales Return Journal – Record sales return

Purchase Journal – Record credit purchase

Purchase Return Journal – Record purchase return

Cash Receipt Journal – Record cash sales

Cash Payment Journal – Record cash purchase

General Journal – Other than mentioned above

Matching Principle: requires that expenses incurred by an organization must be charged to the income statement in the accounting period in which the revenue, to which those expenses relate, is earned. Example where inventories purchased for sales are not sold by the end of accounting period, the cost is carried forward to match the purchase with sales in other accounting period. Other examples of matching principle include depreciation, deferred tax liability/assets and government grants.