In practice the distinction between the two forms of entry in a double entry system is not a serious problem to enterprises who use accounting software packages since the second entry is made at the same time. However it is necessary for the user to establish the relationships between accounts during the system set up. Most packages will provide guidance but there is nothing like knowing what you are doing and understanding how the various parts of the system go together

The accounting profession has used the terms Debit and Credit for use to distinguish the two sides of a tranaction posting in a double entry system. The use of these terms leads to a great deal of confusion since they are not logical in the manner in which they are applied. For instance a cash account that has a surplus of funds is said to be in credit yet adding more cash is made as a debit entry !!

A simple way to remember how to post a transaction is to use Receive for Debit and Give for Credit so that when you make an entry that adds cash to your cash account it will be posted in the left hand colum or as the accountant says 'Debit'

Believe me, accountants themselves have trouble and they use T-Charts in order to check that an entry has been made correctly. These are simple sketches of the accounts concerned into which the transactions are made, usually in pencil so that they can be corrected !! The result of checking a series of entries should always be a balancing of each pair of entries in two different accounts on opposite sides

An few examples are shown here to illustrate how straight forward this quick check is. The first example is the entries made for a Credit Sale where the Sales Ledger is posted with the amount (X in this example) of the Sale and this same amount is posted to the Customer's Nominal Account. When the Customer pays any money (O) it will be posted to the Cash Account. The result is that the Sales Ledger has increased in value, the Customer Account will increase at the same time and then decease as their money is received whilst the Cash Account will increase as the cash is deposited. The example also shows how a Cash Sale would increase both the Sales ledger (#) and the Cash Account (#)

A T-Chart example of making Sales postings

Sales Receive Db Give Cr X #

Nominal - Customer Receive Db Give Cr X O B

Cash Receive Db Give Cr O #

Return to Know Your Accounts