Accounting & Bookkeeping

# Accounting & Bookkeeping Knowledge Pack

## Double-Entry Bookkeeping

### The Fundamental Equation
Assets = Liabilities + OE. Every transaction must maintain this equation. Double-entry means every transaction affects at least two accts: one DR and one CR. DRs must always equal CRs.

### DR and CR Rules
- **Assets**: DR increases, CR decreases. Normal balance: DR
- **Liabilities**: CR increases, DR decreases. Normal balance: CR
- **OE/Revenue**: CR increases, DR decreases. Normal balance: CR
- **Expenses**: DR increases, CR decreases. Normal balance: DR
- **Dividends/Draws**: DR increases, CR decreases. Normal balance: DR

Memory aid: DEALER — Dividends, Expenses, Assets are DR-normal. Liabilities, Equity, Revenue are CR-normal.

### Common JEs

**Purchase inventory on credit:**
DR Inventory (asset up) $5,000
CR AP (liability up) $5,000

**Record a sale:**
DR AR (asset up) $3,000
CR Sales Revenue (revenue up) $3,000
DR COGS (expense up) $1,800
CR Inventory (asset down) $1,800

**Receive payment from customer:**
DR Cash (asset up) $3,000
CR AR (asset down) $3,000

**Pay supplier:**
DR AP (liability down) $5,000
CR Cash (asset down) $5,000

**Record dep:**
DR Dep Expense $500
CR Accumulated Dep $500