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Chapter 20

Example 2

Now that you have a good grasp of the double-entry requirements for basic
transactions lets apply those rules to Example 1 from earlier in this chapter.

Required:

Using transactions from Example 1 were as follows – state whether each
increase/decrease would require a debit or credit entry.

Example 2: Solution

Day 1 AVO commenced business introducing $1,000 cash.

Debit/Credit
Assets (cash) increase by $1,000 Debit
Equity (equity) increases by $1,000 Credit

Day 2 Bought a motor car for $400 cash.

Assets (cash) decrease by $400 Credit
Assets (motor car) increases by $400 Debit

Day 3 Obtained a $1,000 loan.

Assets (cash) increases by $1,000 Debit
Liabilities (loan) increases by $1,000 Credit

Day 4 Purchased goods for $300 cash.
Equity (profit) decreases by $300 Debit
Assets (cash) decreases by $300 Credit

Day 5 Sold goods for $400 on credit.
Equity (profit) increases by $400 Credit
Assets (receivables) increases by $400 Debit

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