DOUBLE ENTRY PRINCIPLE

Are you an accountant? Do you understand some knowledge of accounting? I know you understand what I mean by double entry principle.

Are you a layman? I know you must have come across a situation where an accountant talked about DEBIT and CREDIT. Why do most accountant sing that "song''? Debit and Credit.

They say "For every debit entry. There is a corresponding credit entry" What is that all about?

As they say, Knowledge is power and so irrespective of your background, you will find this piece informative.

What we know today as double-entry bookkeeping is traceable to a man called Luca Pacioli, the author of the world's first printed book-keeping treatise. As the origin of all subsequent book-keeping treatises throughout Europe, Luca Pacioli's book-keeping tract is a major source of modern accounting and this has been adopted by accounting and many accounting professional body worldwide.

The double entry stipulates for every item you record on the Debit side of a ledger, that same item must be recorded on the Credit side of another ledger. The essence of this is to have a fair way of treating and accounting for transactions. The Debit side is always the left-hand side while the credit side is always the right-hand side.

Accounting equation = Assets = Liabilities + Equity

The Double entry principle is an error detection tool; if at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. Though it is possible that this analysis may not guarantee errors, it is a fundamental way to detect errors.

If for instance, you incur transportation expense of $ 500, the two item involve here is Transportation and Cash. How do we know what to debit and credit in this transaction?

The answer lies in Jesus Christ statement hundred of years ago. The statement says" There is more happiness in giving that there in receiving'' Who is giving in the transaction and who is collecting in the transactions? He that gives should be on the CREDIT side since he is happy and he that receives should be on the DEBIT side. In the transaction outlined above, "Cash gave to Transportation''. So we will Credit Cash with N500 and Debit Transportation with N500.

Hope my little analyses has opened your mind to the double entry principle.