rules of double entry

Remember that the double entry rules means that we MUST make two entries for each transaction

This means that for every transaction, there is a "double impact" - or two main accounts being affected

Therefore, for every transaction, there should be a DEBIT entry, and an equal and corresponding CREDIT entry.

Motor Vehicle is an ASSET, and we are INCREASING the value - so we will DEBIT Motor Vehicle Account

Cash is an ASSET, and we are using CASH to PAY for the new car, so the value of cash is DECREASING - so we will CREDIT the Cash Account.

Two main accounts are affected:

1) Started business means Capital Account

2) The business now has money in the Bank

This means that :

• The amount of money in the bank INCREASED (as the business had no money in the bank before this transaction - in fact, the business did not even exist) so we will DEBIT the Bank account as this is an asset account.
• Capital account is INCREASING, so we will CREDIT the Capital account.

Two main accounts affected here are:

1) Furniture

2) PURCHASED ON CREDIT means ACCOUNTS PAYABLE

When we use the Rules of Double Entry, we will:

1) Furniture is ASSET, it is an INCREASING, so we will DEBIT the Furniture account

2) Accounts Payable is a LIABILITY, it is INCREASING so we will CREDIT the Accounts Payable Account.