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Exceptions to double entries

In the normal day-to-day bookkeeping, most of the entries made are simply paying cash for expenses. The entries involve debiting (increasing) the expense accounts and crediting (decreasing) the cash account. Sometimes, two or more entries are required to be made to the debit or credit sides of the affected accounts. This happens when there are bills that contain other charges which are not categorized as expenses. The following show the debit and credit entries that have to be made.

When money is borrowed for a purpose like the purchase of an asset, interest on the loan will be incurred. The loan interest is not treated as part of the cost of acquiring the asset but a liability item. Here, three or even four entries are made in three different accounts instead of the usual two. As money is paid out for the loan and its interest, the cash account is credited with the total for both loan and interest. It is possible to have two credit entries on the cash account to show separate payments, that is one for the installment payment for the principal sum of the loan and the other for the interest. The accounts debited are the loan account and the loan interest account. The loan account is debited to reduce the outstanding principal sum, and the debit entry on the interest account is to add to the interest already paid to show the total of the interest paid to date.

The bill received for buying a motor van shows safety items added and for repairs. When entries in the accounts are made for this transaction, the motor vehicle account is debited with the cost of the vehicle and the charges for the safety items. The safety items are capital expenditure as they add to the value of the asset. The amount for repairs is debited to the repairs to motor vehicle account. Only one credit entry is necessary in the cash account assuming that the same supplier of the van did the work of adding the safety items and carrying out the repairs.

If you record a transaction in the debit and credit sides of the accounts correctly, the two sides should exactly balance each another. As multiple entries are made to more accounts, the total of amounts on the left or debit side must equal the total on the right or credit side. These debits and credits that are equal are however not necessarily free from errors. Correctly debiting or crediting but to wrong accounts does not affect the balance of the two sides.

Last Updated (Saturday, 25 September 2010 18:04)