Page 44 - Book-keeping for Secondary Schools Student’s Book Form One

Book-Keeping for Secondary Schools

Example 3.1
Applying the double entry rules

Take an example of the following transactions conducted by Habibu’s business:
1. Paid cash TZS 25,000 on 31 January in respect of electricity bill for the month.
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2. Received TZS 20,000 from a customer for a haircut of her four children.
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Required: Show how the transactions will be recorded in the double entry system.

Solution
For transaction 1
The transaction involves an increase in expenses (electricity) by TZS 25,000 and a
decrease in asset (cash) by TZS 25,000. A debit entry will be made in the electricity
expense account to record the TZS 25,000 increase in expense, and a credit entry will
be made in the cash account to record the TZS 25,000 decrease in the asset.
The entries can be summarised as follows:
Debit: Electricity expense TZS 25,000

Credit: Cash TZS 25,000

For transaction 2
The transaction involves an increase in asset (cash) by TZS 20,000 and an increase in revenue
by TZS 20,000. A debit entry will be made in the cash account to record the TZS 20,000
increase in asset, and a credit entry will be made in the service revenue account to record the
TZS 20,000 increase in revenue.
The entries can be summarised as follows:

Debit: Cash TZS 20,000

Credit: Service revenue TZS 20,000

Double entry system
Looking at the way double entries are made in the above explanations and examples, it
is now simple to understand. The principle of double entry states that “For every debit
entry there must be a corresponding credit entry, and vice versa”.

A debit entry is an entry on the debit side of an account, and a credit entry is an entry
on the credit side of an account. A corresponding entry refers to an entry in relation to
the same transaction for which a debit entry has been made, and will be made on the
opposite side (credit side) of the other account affected by the same transaction.

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Student’s Book Form One

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