Double entry

Habari Mwanafunzi! Welcome to the Heartbeat of Accounting!

Ever tried to figure out where your pocket money went? You know you had 500 bob on Monday, and by Friday... poof! It's gone. Now, imagine a business like a local *duka* or a busy cyber café trying to track millions of shillings. It would be chaos, right? Well, that's where the magic of Double Entry comes in. It's the powerful, unshakable system that keeps the financial world in order. It's the GPS for business money, and today, you're going to learn how to read the map!

Forget everything you think you know about "debit" and "credit" from your M-Pesa messages. We're going to build the foundation from scratch, the Kenyan way. Are you ready? Let's begin!

The Golden Rule: The Accounting Equation

Everything in accounting, and I mean EVERYTHING, balances on one simple, beautiful equation. It's the law of the land. Memorise it, understand it, live by it!

Assets = Liabilities + Equity

Let's break it down with examples you know:

• Assets: These are the valuable resources a business OWNS. Think of them as the tools for making money.
  • The delivery truck for a bakery in Nairobi.
  • The computers in a cyber café in Kisumu.
  • The M-Pesa float for an agent's shop.
  • Cash in a KCB bank account.
• Liabilities: This is what the business OWES to others. It's a debt or an obligation.
  • A Sacco loan used to start a boda-boda business.
  • Money owed to a supplier in Gikomba Market for new stock.
  • An electricity bill from KPLC that hasn't been paid yet.
• Equity (or Capital): This is the owner's stake in the business. It's what the owner has personally invested. It's the value that is left for the owner after you pay off all the liabilities.
  • The 100,000 KES you used from your own savings to start your online business.

Think of it like this: You buy a new smartphone (Asset) for 30,000 KES. You paid 20,000 KES from your pocket (Equity) and borrowed 10,000 KES from your sister (Liability).
Asset (30,000) = Liability (10,000) + Equity (20,000). It always balances!

> **Image Suggestion:** [A vibrant, colourful illustration in a modern flat design style. The image depicts a balanced scale. On one side of the scale, there are icons representing Kenyan assets: a small delivery van, a computer, and some Kenyan shilling notes. On the other side of thescale, there are icons for liabilities (a loan document with a Sacco logo) and equity (a person putting money into a piggy bank). Text labels 'ASSETS', 'LIABILITIES', and 'EQUITY' are clearly visible. The background shows a subtle Nairobi skyline.]

Debit (Dr) and Credit (Cr): The Two Sides of Every Story

Every single transaction in a business has two effects. Always two. No exceptions. We record these two effects using the terms Debit (Dr) and Credit (Cr).

IMPORTANT: Debit does NOT mean 'bad' or 'decrease'. Credit does NOT mean 'good' or 'increase'. Erase that from your mind! For now, just think:

• Debit (Dr) = LEFT side of an account.
• Credit (Cr) = RIGHT side of an account.

We use a simple tool called a T-Account to visualise this. It looks just like the letter 'T'.

          Account Name
      ____________________
     |                    |
Debit (Dr)           |          Credit (Cr)
(Left Side)          |         (Right Side)
     |                    |
     |                    |

The Unbreakable Rules of Debit and Credit

So, how do we know when to write on the left (Debit) and when to write on the right (Credit)? We follow a set of rules. A great way to remember them is with the mnemonic DEAD CLIC.

  ***************************
  *      D E A D            *
  ***************************
  * D = Debits increase     *
  * E = Expenses            *
  * A = Assets              *
  * D = Drawings (Owner's   *
  *     withdrawals)        *
  ***************************

  ***************************
  *      C L I C            *
  ***************************
  * C = Credits increase    *
  * L = Liabilities         *
  * I = Income (Revenue)    *
  * C = Capital (Equity)    *
  ***************************

This means:

• To increase an Asset or Expense account, you DEBIT it.
• To decrease an Asset or Expense account, you do the opposite: you CREDIT it.
• To increase a Liability, Income, or Capital account, you CREDIT it.
• To decrease a Liability, Income, or Capital account, you do the opposite: you DEBIT it.

This is the core principle! Read it again. Let it sink in. Sawa sawa?

Let's Practice: "Asha's Catering Services"

Let's follow a new entrepreneur, Asha, who is starting a small catering business in Mombasa. We will record her first few transactions.

Transaction 1: Starting the Business

Asha transfers KES 200,000 from her personal savings account into a new business bank account.

• Accounts Affected: The business's Cash/Bank (an Asset) and Asha's Capital (Equity).
• The Analysis:
  • The business's cash (Asset) has increased. The DEAD rule says to increase an Asset, you Debit it.
  • The owner's investment (Capital) has increased. The CLIC rule says to increase Capital, you Credit it.

        Cash (Asset)                Capital (Equity)
    ___________________         ______________________
   |                   |       |                      |
Dr | 200,000           |       |           200,000    | Cr
   |                   |       |                      |

Transaction 2: Buying Equipment

Asha buys a professional cooking stove for KES 50,000, paying with cash from the business bank account.

• Accounts Affected: Equipment (an Asset) and Cash/Bank (also an Asset).
• The Analysis:
  • The business's Equipment (Asset) has increased. To increase an Asset, you Debit it.
  • The business's Cash (Asset) has decreased. To decrease an Asset, you Credit it.

      Equipment (Asset)               Cash (Asset)
    ___________________         ______________________
   |                   |       |                      |
Dr | 50,000            |       |           50,000     | Cr
   |                   |       |                      |

Transaction 3: First Catering Gig!

Asha caters for an event and receives a payment of KES 30,000 in cash.

• Accounts Affected: Cash/Bank (an Asset) and Sales Revenue (Income).
• The Analysis:
  • The business's Cash (Asset) has increased. To increase an Asset, you Debit it.
  • The business's Income (Sales Revenue) has increased. To increase Income, you Credit it.

Transaction 4: Paying Rent

Asha pays the monthly rent for her small kitchen space, KES 15,000, using cash.

• Accounts Affected: Rent Expense (an Expense) and Cash/Bank (an Asset).
• The Analysis:
  • The business's Rent Expense has increased. The DEAD rule says to increase an Expense, you Debit it.
  • The business's Cash (Asset) has decreased. To decrease an Asset, you Credit it.

    Rent Expense (Expense)             Cash (Asset)
    ___________________         ______________________
   |                   |       |                      |
Dr | 15,000            |       |           15,000     | Cr
   |                   |       |                      |

> **Image Suggestion:** [A friendly, professional Kenyan teacher (male or female) standing in front of a modern whiteboard. On the whiteboard, there's a large, clearly drawn T-Account with the words 'Debit' and 'Credit' labeled. The teacher is pointing to the T-Account with a smile, and the classroom setting looks bright and encouraging. The style should be realistic and positive.]

Conclusion: Tuko Pamoja!

You've just taken your first, most important step in financial accounting! It might feel like a lot, but remember these key points:

1. The accounting equation (Assets = Liabilities + Equity) is your foundation. It MUST always balance.
2. Every transaction has two sides: a debit and a credit.
3. The total of all debits for a transaction must equal the total of all credits.
4. Your new best friend is the DEAD CLIC rule. Use it to decide what to do for every transaction.

Practice makes perfect. Go through Asha's transactions again. Think of a simple business you could start—selling snacks, offering graphic design, anything!—and try to imagine the transactions. What would you debit? What would you credit? The more you practice, the more it will become second nature.

Well done today! You are well on your way to becoming an accounting expert.