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Double entry bookkeeping (Stock (Goods purchased for resale, Goods are…
Double entry bookkeeping
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Traditionally the books of accounts were divided into two parts, the left hand side is the debit side and the right hand side the credit side
Debit: An entry on the left hand side of an account in the double-entry bookkeeping tat denotes an expense in the profit and loss account or an asset in the balance sheet
Credit: An entry on the right hand side of an account in double-entry bookkeeping that denotes an income in the profit and loss account or a liability in the balance sheet
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Entires will be recorded in the books of accounts as and when the transactions occur, not when money for these transactions is received
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Purchases
A vast majority of transaction entries in expense accounts reflect an increase in expenses and are recorded on the debit side
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For example, a business purchases cleaning materials at a cost of £200, the business is decreasing its cash in the bank by £200 and increasing its expense by the sae amount. Dr Cleaning Materials Cr Bank
If a business buys something on credit terms, Dr expense Cr Creditor
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Stock
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Goods are usually sold at a selling price that is greater than cost price with the difference being profit
It is usual to record increases in stock in a purchases account, as this allows the profit element to be accounted for
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The sales account only records the sale of those goods that were bought with the prime intention of resale
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Goods returns
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May be returned due to damage in transit, faulty, wrong item, unfit for purpose or wrong colour
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A sales return reduces the income of the business in receipt of the returned goods, and always an increase in its asset as the stock has increased
Payment to creditors
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When payment is made to a creditor, the payee will experience a reduction in its asset, as payment will involve a reduction its bank account or cash account. It will also reduce a liability, meaning the liability account gets debited
Payment from debtors
A reduction in the asset (credit debtor account) and an increase in asset account (debit cash/bank account)