The DOUBLE ENTRY METHOD Agenda The double entry

The DOUBLE ENTRY METHOD

Agenda • The double entry method • Exercise

The double entry method • It is the method used to account for the operations occurred during the year ( from 01/01/2018 to 31/12/2018) • The double entry method is based on the use of a particular scheme, called «T-ACCOUNT» Left side: TO GIVE Left side: TO HAVE • For each item of the Balance Sheet and for the Income Statement a Taccount must be created

The double entry method: four operations • The double entry method requires 4 operations to «full-fill» the Taccount: 1) To insert the original/initial/first value (i. v. ) 2) To insert the value variation 3) Adjustment 4) To calculate the final value (f. v. )

The double entry method: types of T-account …. For each item of the Balance Sheet and for the Income Statement a T -account must be created…. . 4 types of T-account: - assets (B. S. ) - liabilities (B. S. ) - profit (I. S. ) - cost (I. S. )

The double entry method: ASSETS and LIABILITIES ASSETS 1) 2) 3) 4) I. V. in to give 1) I. V. Positive variation in to give 2) + Negative variation in to have F. V. (Σ to give – Σ to have) in to give 4) F. V. LIABILITIES 1) 2) 3) 4) I. V. to have Positive variation in to have Negative variation in to give F. V. (Σ to give – Σ to have) in to have 3) - 1) I. V. 3) - 2) + 4) F. V.

The double entry method: PROFIT and COST PROFIT 1) 2) 3) I. V. = 0 – WHY? Positive variation in to have F. V. = Σ to have 2) + 3) F. V. COST 1) I. V. = 0 – WHY? 2) Positive variation in to GIVE 3) F. V. = Σ to give 2) + 3) F. V.

Drawing up the Balance Sheet • 4 fundamental steps 1) Opening the accounts 2) Accounting for operations 3) Adjustment operations 4) Closing the account

Opening the accounts • Creation of the T-account • Insert of the I. V. • Attention! You MUST insert an initial value only for assets and liabilities side of the Balance Sheet (T-account of the Income Statement do NOT have initial value to be inserted)

Accounting for operations • You have to register ALL the operations occured during the year (current) and to adjust ALL of the non-current operations • Elementary operations: o Purchase of a property o Bank debt o Sale revenue o Staff/personnel cost Complex operations: o Commercial credits o Borrowing costs o Revaluation o Rentals

Adjustment operations • Principal adjustment operations are the following: o Changes in inventories o Depreciation – To have (property, plant and equipments) because the depreciation represent a reduction of the total value of the item – To give in I. C. because the depraciation is a costs according to the accrual accounting principle o Impairment test (assets side of the B. S. ) – To have to account for the reduction of the value (e. g. ) – To give in liabilities side of the B. S. or value reduction of non-current asset in I. S.

Closing the account • For each T-account the final value must be calculated: Assets Σ to give – Σ to have Liabilities Σ to have – Σ to give Profit Σ to have Cost Σ to give

EXERCISES