Double Entry Bookkeeping – JSS1 Business Studies Lesson Note (Third Term)

The double entry principle states that for every credit entry there must be a corresponding debit entry, and the other way round. Each account in a business is treated as a person. An account that receives value is a debtor and is debited. An account that gives value is a creditor and is credited.

Behavioural objectives

By the end of the lesson, students should be able to:

• state the double entry principle;
• explain the separate entity concept;
• explain why each account is treated as a person;
• say which account is a debtor and which is a creditor in a transaction;
• state the accounts to debit and credit in simple transactions, such as starting a business with cash and selling goods for cash.

What is the double entry principle?

The double entry principle states that for every credit entry, there must be a corresponding debit entry and vice versa.

Why is every account treated as a person?

For a proper understanding of this principle, it must be borne in mind that every business is a separate entity, and every account of a business is personified, that is, deemed to be capable of acting as a person. An account can therefore receive something and can give out something.

Who is a debtor and who is a creditor?

From the above explanation, it follows that what one account gave out was received by another account. In accounting, a giver is referred to as a creditor and a receiver is called a debtor. That is, any account that receives is a debtor and any account that gives is a creditor.

How is the double entry principle applied?

Mr Obi started a business with cash of ₦10,000. He then sold goods for cash for ₦1,000. The double entries are:

Evaluation

1. What is the principle of double entry?
2. What is the separate entity concept?

General evaluation

1. Define sole proprietorship.
2. State four characteristics of sole proprietorship.
3. State four advantages of sole proprietorship.
4. Mention four sources of capital for sole traders.
5. Which is the oldest form of business organisation?

Assignment

Reading assignment

• Read Essential Financial Accounting by O. A. Longer, pages 9 to 12.
• Read WABP Business Studies JSS2 by Egbe Ehiametalor et al, pages 96 to 107.

Weekend assignment

1. When goods are sold on credit to Mr Eze for ₦50,000, the double entry is debit Mr Eze’s account and credit:
   • A. Sales a/c
   • B. Eze’s a/c
   • C. Purchases a/c
   • D. Capital a/c
2. In accounting, a giver is called:
   • A. debtor
   • B. creditor
   • C. taker
   • D. saver
3. A receiver in accounting is referred to as:
   • A. debtor
   • B. creditor
   • C. manufacturer
   • D. retailer
4. To debit an account means to place some value on the _____ side of an account.
   • A. right
   • B. left
   • C. left and right
   • D. all of the above
5. To credit an account means to place an amount on the _____ side of an account.
   • A. right/credit
   • B. left/debit
   • C. both A and B above
   • D. none of the above

Theory

1. Define the double entry principle.
2. In the following transactions, state the account to be debited and the account to be credited:
   • A. Sold goods for cash
   • B. Bought goods for cash
   • C. Started business with ₦10,000 cash