The double entry system requires every transaction to affect at least two accounts, with total debits equal to total credits. The direction — debit or credit — depends on the account element and whether it is increasing or decreasing (DEAD CLIC). Assets, expenses, and drawings increase on the debit side. Liabilities, equity, and income increase on the credit side.
Journals record transactions chronologically, debit entry first. Every sale (cash or credit) requires two pairs of entries: the revenue side (DR Trade receivables (credit sale) / DR Cash in hand or Cash at bank (cash sale) / CR Sales revenue) and the cost side (DR Cost of sales / CR Inventory). Trade discount is never recorded — only the invoiced price is journalised.
Ledger accounts consolidate all entries for one account and show a running balance after every entry. The Particulars column names the other account in the double entry. Trade receivables and Trade payables accounts must always include the counterparty name. Debit-natured accounts (assets, expenses, drawings) increase with debits; credit-natured accounts (liabilities, equity, income) increase with credits.
Trade discount is a reduction from the list price and is never recorded — only the invoiced price is entered in the books. Cash discount is recorded: Discount allowed (expense, Dr) in the seller's books; Discount received (income, Cr) in the buyer's books. Cash received plus the discount must always equal the original amount owed.
To interpret a ledger entry: identify the date, the Particulars account, and the debit or credit direction. Key transactions to recognise: purchase returns (DR Trade payables / CR Inventory), sales returns (DR Sales returns / CR Trade receivables), cash payments, discounts, interest charged to customers (DR Trade receivables / CR Interest income), and drawings of goods (DR Drawings / CR Inventory at cost).