How do you solve a transaction using double entry system?

Answer 1

First you have to understand the nature of the transaction, and be aware of any special rules for recording the given transaction. When the transaction is recorded in the accounting records as a journal entry, total debts must be equal to total credits for the journal entry.

Generally, if a transaction involves the acquisition of an asset or the incurring of an expense, a debit for the amount of the transaction (usually its cost) is recorded. A corresponding credit is made either to the cash account (if the item has already been paid for by cash or check) or to a liability account such as Accounts Payable (if it has not yet been paid for, which is often the case). In large companies, the initial credit is usually made to the Accounts Payable account , and a separate department will actually pay the invoice for acquired assets or services rendered to the business. When the invoice is paid and a check is cut, a debit is made to Accounts Payable (cancelling out the original credit) and a credit is posted to cash (to show the amount of decrease in the Cash account when payment is actually made).