Basics of Double Entry Accounting System

1. Discipline: Basis of accountingTheme 4: Double Entry Lecturer: Vornicova Natalia, Master of Economic Sciences Chisinau 2019

2. To keep a company's financial data organized, accountants developed a system that sorts transactions into records called accounts.The list of the company's transactions is referred to as the company's Chart of accounts.

3. Depending on the size of a company and the complexity of its business operations, the chart of accounts may list as few as thirty accounts or as many as thousands. A company has the flexibility of change its chart of accounts to best meet its needs.

4. Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. Account numbers are often four or more digits in length with each digit representing a division of the company, the department, the type of account, etc.

5. The chart of accounts of the Republic of Moldova covers the following Classes: • Class I – Long-term assets (fixed assets) (Dr) • Class II – Current assets (short-term assets) (Dr) • Class III– Own capital (equity) (Cr) • Class IV – Long- term liabilities (Cr) • Class V – Current liabilities (Cr) • Class VI – Revenues (Cr) • Class VII – Expenses (Dr) • Class VIII– Management accounts (Dr) • Class IX – Off-balance sheet accounts

6. A business needs to determine the type of bookkeeping system that will be used for recording their business transactions. Many small businesses start out using the single entry system.

7. The single entry system is an "informal" accounting/bookkeeping system where a user of this system makes only one entry to enter a business financial transaction. It generally includes a daily summary of cash receipts and a monthly record of receipts and disbursements (worksheets).

8. The core of this system is placed on determining the profit or loss of a business.It got its name because record of each transaction makes only once as either revenueor as an expense (debits and credits are not used to record a financial event).

9. The single entry system may be acceptable for tax purposes, it does not provide a business with all the financial information needed to adequately report.

10. The double entry system is the standard system used by businesses and other organizations to record financial transactions.

11. Under the double-entry system every business transaction is recorded in at least two accounts. One account will receive a "debit" entry, meaning the amount will be entered on the left side of that account. Another account will receive a "credit" entry, meaning the amount will be entered on the right side of that account. The initial challenge with double-entry is to know which account should be debited and which account should be credited.

12. Since all business transactions consist of an exchange of one thing for another, double entry bookkeeping using debits and credits, is used to show this two-fold effect. Debits and credits provide the ability to record the entries twice.

13. The double entry system also has built-in checks and balances. Due to the use of debits and credits, the double-entry system is self-balancing. The total of the debit values recorded must equal the total of the credit values recorded.

14. In accounting is opened an account for each item in records. The account has the following format:

15. The conventional account has the format of the letter ‘T’; so they are often known to as T-accounts.

16. Accounts are the summary record of all transactions relating to a particular item in a business.

17. Opening balance is the amount of funds in a company's account at the beginning of a new financial period.

18. Closing balance is the amount remaining in an account within your chart of accounts, positive or negative, at the end of an accounting period or yearend.

19. A ledger is a whole bunch of T-accounts grouped together.The main ledger is called the general ledger.

20. Assetsand Expense Type of Accounts are increased using the Left Side of the account (debited) and decreased using the Right Side of the account (credited).

21. The reverse is true for the Liability, Equity, and Revenue Type of Accounts. These Type Of Accountsare increased using the Right Side of the account (credited) and decreased using the Left Side of the account (debited).

23. Closing balance of debited accounts = Opening balance + entries (Dr) – outputs(Cr)Closing balance of credited accounts = opening balance + entries(Cr) – outputs (Dr)

24. In a system of accounts, synthetic (firstorder) accounts are distinguished from analytic(detail) accounts; analytic accounts are drawn up on the  basis of  synthetic  accounts.

25. The  accuracy of the data recorded in accounts is  checked by comparison  of the totals of the appropriate synthetic and analytic  accounts during the preparation of turnover statements.

26. The accounts are closely linkedwiththe balance sheet. They are opened that is, entries  are  made  in accounts at the  beginning  of the  report periodusing the data  contained in the  balance  sheet; at the end of the report period, the balance sheet is drawn up from the different  data contained in the synthetic accounts. 

27. The entry  in synthetic and analytic  accounts  are reconciled every month; the balance sheet is considered correct only if theentries reconcile.

28. Thanks for attention!