Accounting Business Reporting for Decision Making

CHAPTER 4 Business transactions 135

Let us now use the ledger to record the original capital contribution made by N Cash (see illustrative

example 4.7). Note the number reference in the right-hand corner of the T account.

ILLUSTRATIVE EXAMPLE 4.7

Ledger entry for Advantage Tennis Coaching

Cash at bank 100

1/9 Capital — N Cash $20 000

Capital — N Cash 300

1/9 Cash at bank $20 000

This transaction shows the capital contribution by the owner, N Cash, of $20 000 cash. It is recorded

by a debit to the cash account (an asset account) and a credit to the capital account (an equity

account).

4.7 Rules of debit and credit

LEARNING OBJECTIVE 4.7 Apply debit and credit rules, and record simple transactions in the journals
and ledgers of the business.

The debit and credit rules that we have applied are summarised in table 4.1. Remember that debits and

credits are opposites of each other, so whichever rule is applied to one, the opposite rule must be applied

to the other.

TA BLE  4.1 Debit and credit rules

Increase Decrease

Debit •  Assets

•    Expenses

•    Liabilities

•    Equity

•    Income

Credit •     Liabilities

•    Equity

•    Income

•    Assets

•    Expenses

Let us now look at ATC’s business transactions from 3 to 7 September as further examples of double-

entry accounting using journal entries.

3/9 ATC purchased $500 office equipment and paid cash.

Date Name of account Dr Cr

3/9 Office equipment

Cash

$500

$500

4/9 The business sent an invoice for services rendered for $3000.

Date Name of account Dr Cr

4/9 Accounts receivable

Service fees

$3 000

$3 000