Page 71 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Ledger accounting and double-entry bookkeeping

Whether an entry is to the debit or credit side of an account depends on the type of
account and the transaction:

Debit Credit

Increases in: $ Increases in: $

Purchases Revenues
Expenses Liabilities

Assets Shareholders' equity

You can use the mnemonic 'PEARLS' to help you remember this vitally important
double entry rule.

It is important to note that the opposite is also true, for example, a reduction in assets
would constitute a credit entry into the ledgers.

Bookkeeping is the technique of recording financial transactions as they occur so that
summaries may be made of the transactions and presented as a report to the users
of accounts. The double-entry bookkeeping technique applies to the recording of
transactions in ledger accounts.

65