Double Entry / Ledger - Help!

System

Hi Everyone

I'm doing Certificate Level (Unit 30) Diploma, and have been introduced to the ledger or "T" accounting, and am completely confused about debiting/crediting the ledger accounts.

For example, when cash is received by a business, the cash account is debited - this doesn't make sense to me and the whole topic has left me feeling backwards, which is disappointing as I thought the first lesson was really good for me.

If anyone could help me clarify the situation and offer some advice i'd be very grateful.

Kind Regards
Martin

System

Re:Double Entry / Ledger - Help!

‘PEARLS’ is an easy way to remember the different types of accounts and their ‘normal ‘ balances.

Purchases
Expenses
Assets
Revenue
Liabilities
Sales

Just make a 'T' directly in the middle of the word - PEA would be on the DR side and RLS would be on the CR side.

Look at the assets account because cash is an asset. Assets are shown on the debit side of the ‘T’ account so Assets is said to have debit balances. Since this is the case, Expenses and Purchases should also have debit balances.

What this means is that whenever a transaction is recorded in an asset, expense, or purchases account, we must begin by making the FIRST entry on the DR side to increase the account and make an entry to the CR side to decrease it.

Now look at the liabilities account. Liabilities is shown on the credit side of the ‘T’ account so Liabilities is said to have credit balances. Since this is the case, sales and Revenue should also have credit balances.

What this means is that whenever a transaction is recorded in a revenue, liability, or sales account, we must begin by making the FIRST entry on the CR side to increase the account and make an entry to the DR side to decrease it.

Sure hope this helps

System

Re:Double Entry / Ledger - Help!

DEADCLIC is a good one too

DEBIT
Expenses
Assets
Drawings
CREDIT
Liabilies
Income
Capital

System

Re:Double Entry / Ledger - Help!

I had a lesson last night and I'm starting to think i'm either a complete dumbass or my tutor just cannot teach....
As i'm guessing she's been a tutor for 2 years, the former is probably more true.

I don't know whether you'll understand what I'm about to ask but please bear with me - I NEED this to be cleared up for me.

We were give a Purchase Ledger, Sales Ledger and Main (Nominal) Ledger, (3 seperate pieces of paper).
All of these had 6 T-Accounts on each side of the paper (you don't need to know that) so basically she is teaching us what goes on behind the software packages.

I have been learning PEARLS and didn't get the hang of it until yesterday afternoon whilst sitting at work. When I went to college last night, I asked the question "Does PEARLS apply only to the Main ledger"?
She didn't answer with YES or NO - instead went on a ramble with herself about Purchases and Sales Ledgers etc...
I'm a complete novice and didn't need to hear all of the other stuff cos I didn't understand it.

How I see it now - I should do the following... EG::
Credit Purchase for £500.00 Mr X

I would Debit the Main Ledger (PEARLS) then credit the Purchase Ledger for Mr X's Account?

Sorry if that's not clear - i'm finding it a little difficult at the minute.

System

Re:Double Entry / Ledger - Help!

I take it youre talking about the subsidiary ledger?

The subsidiary ledger DOES NOT form part of the double entry.

So, (assuming mr x is a credit customer) you would debit the SLCA with £500 and credit sales, then debit mr x's account in the subsidiary ledger with 500.

The SLCA is just an overview of what is happening in the subsidiary ledger, this is also true for the PLCA.

I hope this helps

Gem

System

Re:Double Entry / Ledger - Help!

The purchase and sales ledgers are subsidiary ledgers which means they are not part of the double entry system - they are simply a record of individual customer (sales) and supplier (purchase) accounts. The need for these is so you can look at an individual account and, for example, see how much a customer owes you.

In the main/nominal ledger, there will be 2 accounts - SLCA (sales ledger control account) and PLCA (purchase ledger control account). The total of the SLCA should be the same as the total of all the accounts in the sales ledger - the same for PLCA.

If you had a sale to a customer on credit of £117.50, the double entry in the main ledger would be:

DR SLCA (can also be known as Debtors) £117.50
CR Sales £100
CR VAT £17.50

You would also record that the customer owes you £117.50 in their individual account in the sales ledger.

When the money is received in:

DR Bank (increases the balance in the bank)
CR Debtors (clears the debtor)

You would then clear the money owed in the individual sales ledger account.

Hope that makes a bit more sense for you?

System

Re:Double Entry / Ledger - Help!

Magic!

Cheers PP

System

Re:Double Entry / Ledger - Help!

No probs!