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Edexcel International A Level Accounting: The double entry system (YAC11) – Revision Notes

Condensed recall notes on the double entry system for Edexcel International A-Level Accounting: rules, prime entry, adjustments and allowances.

Subject
Accounting
Level
AS LEVEL
Topic
Principles of accounting and double entry bookkeeping
Author
Marlbridge Academic Team
Updated
Reviewed by
Javaid Iqbal Sabri (what this means)

Aligned to Pearson Edexcel A Level Accounting (YAC11), 2015-onwards. Official specification .

Syllabus page (what it covers and how it is assessed): Pearson Edexcel A Level Accounting.

Syllabus points this page covers

YAC11 (AS Level)

  • 1.1.3-1.1.7 Double entry system

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These revision notes condense content points 1.1.3 to 1.1.7 of Unit 1 in the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018: the double entry system. Full explanations and longer worked examples are in the study guide. Test yourself with the practice questions. The businesses are invented and amounts are in dollars.

Course hub: Edexcel A-Level Accounting. Checklist: Edexcel accounting checklist. Check where you stand with a free diagnostic. Related Topic 1 notes: principles revision notes.

1.1.3 Books of account: the rules

Each transaction has a dual effect: one account is debited and another credited, for equal values.

Account type Debit Credit
Assets Increase Decrease
Expenses and drawings Increase Decrease
Liabilities Decrease Increase
Capital Decrease Increase
Revenue and other income Decrease Increase

Ledgers: sales ledger (customers), purchases ledger (suppliers), general ledger (nominal and real accounts). Check by trial balance: total debit balances equal total credit balances.

Method for any transaction

  1. Name the two accounts affected.
  2. Decide whether each increases or decreases.
  3. Use the table to choose debit or credit.
  4. Check that the debit and credit amounts are equal.

Common entries to recall

Transaction Debit Credit
Owner takes goods for own use Drawings Purchases
Credit purchase Purchases Supplier
Return to supplier Supplier Purchases returns
Credit sale Customer Revenue (Sales)
Return from customer Sales returns Customer
Cheque from customer Bank Customer
Discount allowed to customer Discount allowed Customer
Discount received from supplier Supplier Discount received
Loan received Bank Loan
The Kestrel Ridge trial balance lists seven debit balances and four credit balances, each with a bar. Both columns total 32,500 dollars.
Debits and credits both total 32,500, so the trial balance agrees.
Six T-accounts show which side increases each account type: assets, expenses and drawings on the debit side; liabilities, income and capital on the credit side. An example buys a 4,000 dollar van by bank: debit Van, credit Bank. The rule is debit the receiver, credit the giver.
Debit the account that receives value and credit the one that gives it; each account type increases on one side only.

1.1.4 Books of prime entry

Book What goes in Posted as
Sales day book Credit sales invoices Debit customers, credit Sales
Purchases day book Credit purchase invoices Debit Purchases, credit suppliers
Sales returns day book Credit notes issued Debit Sales returns, credit customers
Purchases returns day book Credit notes received Debit suppliers, credit Purchases returns
Cash book Cash and bank receipts and payments, discounts Opposite side posted to ledgers
Petty cash book Small payments from a float Analysis totals debited to expenses
Journal Items with no other book (non-current assets on credit, write-offs, opening entries) Debit, credit, narrative

Cash book discounts. Discount allowed column (debit side) total goes to the debit of Discount allowed. Discount received column (credit side) total goes to the credit of Discount received. Individual discounts are posted to the personal accounts.

Imprest petty cash. Reimbursement equals the amount spent, restoring the float. Reimbursement is credited to Bank.

Worked reminder. Strathmoor Fabrics holds a petty cash float of 120. Payments are 24, 31, 19 and 12, a total of 86. The reimbursement is 86 and the float is back to 120.

Three credit sales invoices are entered in the sales day book, total 2,700 dollars. Each is debited separately to the customer in the sales ledger and the total is credited once to Sales, so debits equal credits. Credit notes of 150 and 90 total 240 and are debited to Sales returns.
Post each invoice to the customer, but post the day book total to Sales once.
A float of 150 dollars pays postage 32, refreshments 18, travel 27 and cleaning 14, a total of 91, leaving 59. The bank reimburses 91 to restore the float to 150, with each expense debited and the bank credited.
The imprest system tops the float back up by exactly what was spent.
A three-column cash book shows discount allowed of 100 beside a 4,100 receipt and discount received of 200 beside a 7,300 payment. Each discount is posted at once to the personal account; at period end the column totals are posted to the Discount allowed (debit) and Discount received (credit) accounts.
Individual discounts go to personal accounts at once; the column totals go to the discount accounts at period end.
Three cards show the purchases day book (8,000 invoice), purchases returns day book (500 credit note) and the journal (9,500 van on credit). Each ends in a debit and a credit of equal amount.
Every book of prime entry leads to an equal debit and credit in the ledger.
Six small debit and credit examples show omission, commission, principle, original entry, reversal and compensating errors. In each, total debits still equal total credits, so the trial balance agrees even though the books are wrong.
A balanced trial balance does not prove the books are correct.

1.1.5 End of period transfers and adjustments

Adjustments put income and expenses into the correct period. Transfers move the final totals to the statement of profit or loss.

Item Charge to statement of profit or loss Statement of financial position
Expense Paid + closing accrual − opening accrual Accrual: other payable
Expense Paid + opening prepayment − closing prepayment Prepayment: other receivable
Income Received + closing accrued − opening accrued Accrued income: other receivable
Income Received + opening in advance − closing in advance Income in advance: other payable
Irrecoverable debt Debit expense, credit customer Lowers trade receivables
Depreciation Debit expense, credit provision for depreciation Lowers carrying value
Drawings Not an expense: closed to capital Reduces capital

Worked reminder. Electricity paid is 1,380, with 210 owing at the start and 340 owing at the end. The charge is 1,380 + 340 − 210 = 1,510. Insurance paid is 960, with 120 prepaid at the start and 270 prepaid at the end. The charge is 960 + 120 − 270 = 810.

Cost of sales

Cost of sales = opening inventory + purchases − purchases returns − closing inventory.

Strathmoor Fabrics has opening inventory 3,800, purchases 27,600, purchases returns 900 and closing inventory 4,300. Cost of sales is 3,800 + 27,600 − 900 − 4,300 = 26,200.

Transfers in the ledger: opening inventory is credited to Inventory and debited to the statement of profit or loss; closing inventory is debited to Inventory and credited to the statement of profit or loss. Closing balances are carried down and brought down as opening balances.

A waterfall in dollars: opening inventory 5,200 plus purchases 41,300, less purchases returns 1,100 and closing inventory 6,400, leaves cost of sales of 39,000.
Because inventory is not updated during the year, cost of sales is found from opening inventory, purchases, returns and closing inventory.
Inventory, purchases and purchases returns accounts transfer to the statement of profit or loss in four numbered steps. Debits 46,500 less credits 7,500 give cost of sales of 39,000 dollars.
The four year-end transfers build cost of sales: 5,200 + 41,300 - 1,100 - 6,400 = 39,000.
Twelve monthly boxes show 12,000 pounds of rent paid on 1 October with a 31 December year end. Three months (3,000) are an expense in the income statement; nine months (9,000) are a prepayment shown as a current asset.
Only the part of rent used in the year is an expense; the rest is a prepayment.

1.1.6 Allowance for irrecoverable debts

Method in steps

  1. Write off known irrecoverable debts first.
  2. Take the remaining trade receivables. Apply one rate, or rates to each age band in a schedule.
  3. Compare the new allowance with the existing allowance.
  4. Put only the difference through the statement of profit or loss.
  5. Deduct the new allowance from trade receivables in the statement of financial position.
Situation Allowance account Statement of profit or loss
New allowance greater than old Credit the increase Expense: debit the increase
New allowance less than old Debit the decrease Income: credit the decrease

Worked reminder (single rate). Trade receivables after write-off are 36,000 and the allowance is 4%, giving 1,440. The existing allowance is 1,260, so the increase is 180.

Worked reminder (schedule).

Band Balance Rate Allowance
Current 21,000 2% 420
Overdue up to 60 days 9,000 8% 720
Overdue over 60 days 4,000 25% 1,000
Total 34,000 2,140

Distinction. An irrecoverable debt is certain and written off to an expense account. An allowance is an estimate, held as a deduction from trade receivables, and justified by prudence. A debt recovered after write-off is credited to Irrecoverable debts recovered.

Receivables of 64,100 less a 1,600 write-off leave 62,500, split by age with rates of 1, 4, 10 and 30 percent giving 380, 496, 850 and 1,080, a total allowance of 2,806. The increase of 456 on the existing 2,350 is charged to profit or loss and the statement of financial position shows 59,694.
Write off first, then apply age-band rates; only the increase reaches profit or loss.
Receivables of 48,600 less a 1,100 write-off give 47,500. A 3 percent allowance of 1,425 gives 46,075 in the statement of financial position. The allowance rises from 1,280 to 1,425 (145 expense) and falls to 1,260 the next year (165 income).
Only the change in the allowance is charged or credited to profit.

1.1.7 ICT in the double entry system

The specification says no specific applications or software packages are examined, so write about ICT generally.

  • Recording: one entry posts to every affected account, and day books feed the ledgers.
  • Reconciliations: control accounts and the trial balance can be produced from the ledgers on demand.
  • Financial statements: produced quickly from the ledger data and re-run after adjustments.
  • Benefits: speed, fewer arithmetical slips, easy retrieval, up-to-date figures.
  • Limits: incorrect input still gives incorrect output, errors of principle and compensating errors remain hidden, costs and training, data security, backup and fraud risks.

Worked reminder. A figure of 1,650 is keyed as 1,560. The software debits and credits 1,560, so the trial balance agrees. The error is 90, which is divisible by 9, a typical sign of transposed digits.

A sale of 4,500 is keyed as 5,400. The package posts debit trade receivables and credit sales of 5,400, so the trial balance and control account agree, but profit is overstated by 900.
ICT completes the double entry but cannot spot a wrong amount keyed in.

Must-know distinctions

  • Book of prime entry versus ledger: the first records, the second classifies and balances.
  • Accrual versus prepayment: owed versus paid early.
  • Irrecoverable debt versus allowance: certain versus estimated.
  • Drawings versus expense: capital reduction versus profit reduction.
  • Balance c/d versus b/d: the closing figure carried down becomes the opening figure brought down on the other side.

Quick self-test

  1. Name the accounts debited and credited when the owner takes goods for own use.
  2. Electricity paid is 1,380, owing at the start is 210 and owing at the end is 340. What is the charge?
  3. Insurance paid is 960, prepaid at the start is 120 and prepaid at the end is 270. What is the charge?
  4. Opening inventory is 3,800, purchases 27,600, purchases returns 900 and closing inventory 4,300. Find cost of sales.
  5. Receivables after write-off are 36,000, the allowance is 4% and the existing allowance is 1,260. What goes through the statement of profit or loss, and is it an expense or income?
  6. The allowance falls from 1,440 to 1,210. What is the entry?
  7. A petty cash float is 120 and 86 has been spent. State the reimbursement and the credit entry.
  8. In which book of prime entry is a credit note from a supplier first recorded?
  9. Why can a trial balance still agree after a keying error in accounting software?
  10. State two benefits and two limits of ICT in recording transactions.

Answers

  1. Debit Drawings, credit Purchases.
  2. 1,510.
  4. 26,200.
  5. 1,440 − 1,260 = 180, an expense (debit statement of profit or loss, credit allowance).
  6. The decrease is 230. Debit Allowance for irrecoverable debts 230 and credit the statement of profit or loss 230, increasing profit.
  7. 86, credited to Bank (and debited to the expense accounts).
  8. The purchases returns day book.
  9. The software posts the wrong amount to both sides equally, so debits still equal credits.
  10. Benefits: speed, fewer arithmetical errors. Limits: input errors still produce wrong output, cost and security risks.
Of eleven transactions, seven touch the bank. The bank account shows debits of 31,400 and credits of 14,900 plus a balance carried down of 16,500, which is brought down as a debit.
Seven of the eleven transactions pass through the bank account, leaving a debit balance of 16,500.
A K Lee ledger account is balanced: debits 300 and 450, credits 500 and 50, balance carried down 200, both sides 750, and 200 brought down on the debit side. A running balance layout (Cambridge only) gives the same 200 Dr.
Balancing adds both sides, inserts the balance carried down, and brings it down on the opposite side.
Of 11,200 dollars of rent paid in 2027, 800 clears rent owed from 2026, 9,600 is the 2027 expense and 800 is paid for January 2028 (a prepayment, other receivable). The rent payable account balances at 11,200 and the 800 is brought down as a debit.
Only the part of the cash paid that belongs to the year is charged to the income statement.
A 3,200 dollar list price less 15 percent trade discount (480, never recorded) gives an invoice of 2,720. A 2.5 percent cash discount of 68 is recorded on payment, so the cheque is 2,652. Entries: debit supplier 2,720, credit bank 2,652, credit discounts received 68.
Trade discount is netted off before recording; cash discount is recorded when payment is made.

Where marks are usually lost

  • Reversing debit and credit on a fall in an asset, such as a bank payment.
  • Treating drawings as an expense of the business.
  • Ignoring the opening accrual or prepayment when finding the charge.
  • Putting the whole allowance, not the change, through the statement of profit or loss.
  • Calculating the allowance before the irrecoverable debt is written off.
  • Posting the cash book discount columns to the wrong side.
  • Writing “ICT is faster” without saying what is faster or what still needs human checking.
  • Leaving out the narrative on a journal entry or the account names beside the amounts.

Frequently asked questions

What is a book of prime entry? A book of prime entry gives each transaction its first written record before it is posted to the ledger. Examples are the sales and purchases day books, the returns day books, the cash book, the petty cash book and the journal.

What is the difference between an irrecoverable debt and an allowance for irrecoverable debts? An irrecoverable debt is a trade receivable that will not be paid and is written off. An allowance for irrecoverable debts is an estimate of debts that may not be paid, held in its own account and deducted from trade receivables in the statement of financial position.

What does a journal entry need to show? A journal entry shows the account debited, the account credited, the amount and a narrative explaining the transaction. It is used for items such as buying a non-current asset on credit, writing off an irrecoverable debt and opening entries.

How is cost of sales calculated at the year end? Cost of sales is opening inventory plus purchases, less purchases returns, less closing inventory. Inventory is not updated during the year, so it needs a year-end transfer.

Does a payment from the bank debit or credit the bank account? A payment reduces an asset, so it is credited to the bank account, while a receipt is debited. Reversing debit and credit on a fall in an asset is a common error.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11), Specification, Issue 2, September 2018, Unit 1, topic 1.1 content points 1.1.3 to 1.1.7.

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