Acca f3 Financial Accounting (int) Study Text

96

5: Ledger accounts and double entry   Part C  The use of double entry and accounting systems 

The credit side of this personal account, then, shows amounts owing to Cook & Co. If the business paid 

Cook & Co some money, it would be entered into the cash book (payments) and subsequently be posted 

to the debit side of the personal account. For example, if the business paid Cook & Co $100 on 15 March 

20X8, it would appear as follows: 

COOK & CO 

A/c no: PL 31

$

$

15.3.X8 Cash

100.00

 

Balance 

b/f

200.00

15.3.X8 Invoice 

received

 Balance 

c/d

415.00 PDB 37

315.00

515.00

515.00

16.3.X8 Balance 

b/d

415.00

The opening balance owed to Cook & Co on 16 March 20X8 is now $415.00 instead of $515.00 because 

of the $100 payment made during 15 March 20X8. 

The remainder of the balance brought forward of $100.00 ($200.00 brought forward less payment of 

$100.00) is in dispute and Cook & Co send the business a credit note for $100.00 on 17 March 20X8. 

COOK & CO 

 

 

 

A/c no: PL 31

$

$

17.3.X8  Credit note received

100.00 16.3.X8   Balance b/f

415.00

 Balance 

c/d

315.00

415.00

415.00

12.3.X8 Balance 

b/d

315.00

The business now owes Cook & Co the amount of the invoice received on 15 March 20X8. 

Please note that, in a manual system, the account is not 'balanced off' after each transaction. It is more 

likely to be done once a month. However, we have done this to show the effect of the transactions. 

Important

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Part C  The use of double entry and accounting systems

  5:  Ledger accounts and double entry

97

Chapter Roundup 

 Ledger 

accounts 

summarise all the individual transactions listed in the books of prime entry. 

 

The principal accounts are contained in a ledger called the 

general or nominal ledger.

 The 

accounting equation emphasises the equality between assets and liabilities (including capital as

a liability). 

 

You should now be aware that, when business transactions are accounted for it should be possible to 

restate the assets and liabilities of the business after the transactions have taken place. 

Trade accounts payable are liabilities. Trade accounts receivable are assets.

 The 

matching convention requires that revenue earned is matched with the expenses incurred in earning it. 

Double entry bookkeeping is based on the idea that each transaction has an equal but opposite effect. Every 

accounting event must be entered in ledger accounts both as a debit and as an equal but opposite credit. 

 

A debit entry will: 

 

– 

increase an asset 

 

– 

decrease a liability 

 

– 

increase an expense 

 

A credit entry will: 

 

– 

decrease an asset 

 

– 

increase a liability 

 – increase 

income 

 

Some accounts in the nominal ledger represent  the total of very many smaller balances. For example, the 

trade accounts receivable account represents all the balances owed by individual customers of the 

business while the 

trade accounts payable account  represents all money owed by the business to its 

suppliers.

 The

 journal is the record of prime entry for transactions which are not recorded in any of the other books 

of prime entry. 

 

Entries in the daybooks are totalled and analysed before posting to the nominal ledger. 

 

In the last chapter, we saw how the petty cash book was used to operate the imprest system. It is now 

time to see how the 

double entry works.

 

The receivables and payables ledgers contain the 

personal accounts of individual customers and 

suppliers. They do not normally form part of the double-entry system. 

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98

5: Ledger accounts and double entry   Part C  The use of double entry and accounting systems 

Quick Quiz 

1 

What is the double entry to record a cash sale of $50?  

2 

What is the double entry to record a credit sale of $50? 

A 

Debit cash $50, credit sales $50 

B 

Debit receivables $50, credit sales $50 

C 

Debit sales $50, credit receivables $50 

D 

Debit sales $50, credit cash $50 

3 

What is the double entry to record a purchase of office chairs for $1,000?  

A 

Debit non-current assets $1,000, credit cash $1,000 

B 

Debit cash $1,000, credit purchases $1,000 

4 

What is the double entry to record a credit sale of $500 to A? 

A 

Debit receivables $500, credit sales $500 

B 

Debit receivables ledger (A’s account) $500, credit sales $500 

5 

Name one reason for making a journal entry.  

6 

Individual customer accounts are kept in which ledger? 

 A General 

ledger 

 

B 

Trade accounts receivable 

 C Receivables 

ledger 

 D 

Nominal 

ledger 

Answers to Quick Quiz 

1  

 

$ 

$ 

 DEBIT  Cash 

a/c 

50

 CREDIT Sales 

a/c 

 

50 

2 B 

3 A 

4 

A 

The receivables ledger is a memorandum account and not part of the double entry system. 

5 

Most commonly to correct an error, although it can be used to make any entry that is not recorded in a 

book of prime entry (eg prepayments, accrued expenses, depreciation). 

6 

C 

The receivables ledger contains the individual customer accounts. The general ledger (A) and 

nominal ledger (D) are different names for the same ledger. This contains the trade accounts 

receivable account (B) which is the 

total of all the individual customer accounts. 

Now try the question below from the Exam Question Bank

Number

Level

Marks

Time

Q9

Examination

1

1 min 

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