Grade 8 Commerce
Prepared by: Tahiyat Ahsan Sandra
Topic Wise Lecture Notes
Topic 5: Introduction to Double Entry Bookkeeping: Debit and Credit
Lesson Objectives:
• Define book-keeping and explain the meaning of double entry.
• Recognize that every transaction has two sides: debit and credit.
• Explain the importance of the double entry system in keeping accurate records.
• Apply the basic rules of double entry
• Prepare Journal Entries
Introduction
In business, people buy and sell goods, pay bills, and earn money. To keep track of these activities, we
use book-keeping. Book-keeping is the process of recording all financial transactions in a systematic way.
One of the most important methods of book-keeping is called Double Entry Book-Keeping.
How Are the Transactions Recorded?
The double-entry system of bookkeeping: All transactions are recorded according to the double-entry
bookkeeping system where every transaction has two aspects. One aspect receives the benefit and another
aspect gives the benefit. The receiver of the benefit is debited and the giver of the benefit is credited
with an equal value. The system of making two or double entries of equal value in two different accounts
on opposite sides in the books of each of the contracting parties is known as the double-entry system of
bookkeeping.
What is Double Entry Book-Keeping?
Double Entry Book-Keeping is a system where every transaction has two sides:
• Debit (Dr.)
• Credit (Cr.)
This means whenever something is received, something else is given.
1
Grade 8 Commerce
Prepared by: Tahiyat Ahsan Sandra
Topic Wise Lecture Notes
Rules for debit and credit
1. Asset account: Increases—Dr, Decreases------Cr
2. Liabilities: Decreases—Dr, Increases----- Cr
3. All Incomes: Cr
4. All expenses: Dr
5. Capital: Increases Cr, Decreases Dr
6. Sales: Cr
7. Purchases: Dr
Why is Double Entry Bookkeeping Important?
• It shows a complete record of transactions.
• It helps reduce errors.
• It shows both what a business owns (assets) and what it owes (liabilities).
• It helps prepare the final accounts like Profit and Loss Account and Balance Sheet
Journal Entries
Journal entries are the first record of any transaction. A journal entry is just a way to record a business
transaction in the books of accounts. Every transaction affects at least two accounts — one is debited,
and the other is credited.
How to make Journal Entries?
Date Details Dr ($) Cr ($)
• First line: Account to be debited (Dr.)
• Second line: Account to be credited
2
Grade 8 Commerce
Prepared by: Tahiyat Ahsan Sandra
Topic Wise Lecture Notes
Worked Example:
On 1 July Aisha started a business. The following are her transactions for the first two weeks of
trading:
Jul 1 — Aisha paid capital, $60,000, into the business bank account.
Jul 2 — Bought premises for $30,000, paid by cheque.
Jul 4 — Bought equipment for $5,000, paid by cheque.
Jul 6 — Bought inventory for $2,200, on credit from Greenfield Traders.
Jul 7 — Paid advertising expenses $120, by cheque.
Jul 9 — Sold goods $350, and received a cheque (bank).
Jul 12 — Sold goods $420, on credit to Noor.
Date Details Debit ($) Credit ($)
Jul 1 Bank A/C 60 000
Capital A/C 60 000
Jul 2 Premises A/C 30 000
Bank A/C 30 000
Jul 4 Equipment A/C 5000
Bank A/C 5000
Jul 6 Purchase A/C 2200
Trade Payables (Greenfield Traders A/C) 2200
Jul 7 Advertising Expense A/c 120
Bank A/C 120
Jul 9 Bank A/C 350
Sales A/C 350
Jul 12 Trade Receivables (Noor A/C) 420
Sales 420
3
Grade 8 Commerce
Prepared by: Tahiyat Ahsan Sandra
Topic Wise Lecture Notes
Notebook Activity 1: Using the above rules, prepare the journal entries for the following
transactions.
January 1 Mr. Tehan paid capital, $80,000, into the business bank account.
January 4 Bought goods for cash $100 from C moody.
January 5 Bought goods from J peat by cheque $100.
January 7 Sold goods on credit to H morgan for $500
January 8 Sold goods to J NEWMAN for cash $100.
January 9 Sold goods to Charles by cheque $200.
January 11 Bought office furniture by cheque from faster supplies ltd $3000.
January 12 Bought a van by cheque $2000.
January 24 Paid cash into the bank $200
January 26 Took cash of $500 from bank
January 28 D WATSON lent us $1000 and paid us the money by cheque.
January 29 Paid wages and salary in cash $1000.
