Module 2 — Double entry, the chart of accounts and the journal

Level: Beginner · Duration: 5 hours · Tracks: 🟢 🔵 🟣 · Prerequisite: Module 1

1. Objectives

By the end of this module you will be able to:

1. Design a numbered chart of accounts that suits an e-commerce store, not a generic copy.
2. Apply the debit and credit rule to any transaction without memorising it, by deriving it from the accounting equation.
3. Write a correct, balanced journal entry with a date, a description and a document reference.
4. Record the transactions specific to e-commerce: a card sale, cash on delivery, a return, a gateway settlement, reverse charge.
5. Spot an entry that does not balance, or that sits in the wrong account, before it reaches the statements.

2. Core concepts

2.1 Why "double"?

Because every transaction has a source and a use. Where did the money come from? Where did it go? Double entry forces you to answer both questions together, and that is why it catches your mistakes automatically.

Total debits  =  Total credits     in every entry, in every ledger, always

"Debit" and "credit" are not "increase" and "decrease". They are only left and right.

2.2 The one rule you need to memorise

The trick that replaces memorising: assets sit on the left of the equation (Assets = Liabilities + Equity) ⇒ they increase on the left = debit. Everything on the right of the equation increases on the right = credit. An expense reduces equity ⇒ it stands on the opposite side ⇒ debit. Revenue increases equity ⇒ credit.

2.3 A chart of accounts for an e-commerce store

Numbered in thousands by box, with gaps left for expansion:

The design principle: every sales channel and every type of fee gets its own account. If you do not separate the gateway fees from the Amazon commission from the delivery charge, you will never be able to tell which channel makes money.

2.4 The structure of an entry

Date | Entry no. | Reference (invoice no. / settlement statement)
   Dr  [the debit account]                        amount
       Cr  [the credit account]                       amount
   Memo: one sentence explaining why, not what

"The memo explains why": "recording January sales" is a poor memo. "January card sales per Shopify report #JAN-2026" is an excellent memo — because it leads you to the document when you are audited.

3. Worked examples, step by step

Example 1 — Capital (transaction 1)

The thinking: money came into the bank (asset ↑ ⇒ debit). Its source is the founder as ownership, not as debt (equity ↑ ⇒ credit).

1 January 2026 | JE-001 | Ref: bank deposit advice
   Dr  1010 Bank                                   150,000.00
       Cr  3010 Paid-in capital                        150,000.00
   Memo: founding capital injected by the founder

Example 2 — Importing and landed cost (transactions 3 and 4)

The thinking: inventory is an asset that increases by its full cost until it reaches the warehouse. The invoice is on credit ⇒ a liability. Shipping and customs are paid in cash but they are capitalised into inventory, not expensed.

3 January 2026 | JE-003 | Ref: supplier invoice TR-4471
   Dr  1200 Inventory                               60,000.00
       Cr  2010 Suppliers                               60,000.00
   Memo: import of 1,000 V60 kits — 30 days' credit

5 January 2026 | JE-004 | Ref: customs declaration + shipping invoice SH-119
   Dr  1200 Inventory                                9,000.00
       Cr  1010 Bank                                     9,000.00
   Memo: international shipping 6,000 and customs duties 3,000 — capitalised into the cost of the shipment

The result: inventory 69,000 ÷ 1,000 units = 69 dirhams landed cost per unit, not 60.

The import tax entry (reverse charge): when you import goods, you declare the import tax and reclaim it in the same return — the cash effect is zero, but it must appear in the books:

3 January 2026 | JE-003b | Ref: customs declaration
   Dr  1400 VAT — Input                              3,000.00
       Cr  2100 VAT — Output                             3,000.00
   Memo: reverse charge on an import of goods worth 60,000

Example 3 — Prepaid rent (transaction 5)

The thinking: you paid for 6 months ⇒ the benefit is in the future ⇒ an asset, not an expense. And the tax paid is reclaimable ⇒ a separate asset.

6 January 2026 | JE-005 | Ref: lease agreement + tax invoice R-2026-01
   Dr  1300 Prepaid expenses                        18,000.00
   Dr  1400 VAT — Input                                900.00
       Cr  1010 Bank                                    18,900.00
   Memo: warehouse rent for 6 months (January–June) paid in advance

Example 4 — The card sale (transaction 8) — three common mistakes in one entry

The thinking: the customer paid, but the money has not reached your bank yet — it is at the gateway ⇒ the debit side is "Due from payment gateway" at the gross amount including tax. Revenue is recorded before tax. And the tax collected is a liability, not revenue.

31 January 2026 | JE-008 | Ref: Shopify sales report JAN-2026
   Dr  1110 Due from payment gateway                83,580.00
       Cr  4010 Sales                                   79,600.00
       Cr  2100 VAT — Output                             3,980.00
   Memo: January card sales — 400 units across 250 orders

The three mistakes avoided: (1) we did not put the amount into the bank, (2) we did not include the tax in revenue, (3) we did not wait for the settlement to record the sale — revenue is recognised at the sale, not at collection.

Example 5 — Payment gateway settlement (transaction 11) — the entry everyone gets wrong

The gateway statement on 28 January says:

The thinking: the amount landing in the bank is not the sales. You have to take the statement apart into its components: returns (which reduce revenue and reverse their tax), fees (an expense + input tax), and the rest is cash.

28 January 2026 | JE-011 | Ref: gateway settlement statement PS-JAN-2026
   Dr  1010 Bank                                    76,893.60
   Dr  6010 Payment gateway fees                     2,388.00
   Dr  1400 VAT — Input                                119.40
   Dr  4020 Sales returns                            3,980.00
   Dr  2100 VAT — Output                               199.00
       Cr  1110 Due from payment gateway                83,580.00
   Memo: settlement of the January gateway statement — fees and returns broken out

Check: 76,893.60 + 2,388 + 119.40 + 3,980 + 199 = 83,580.00 ✓

And because the returned goods are undamaged and came back to the warehouse, a second entry is needed to put their cost back into inventory (20 units × 69 = 1,380). The details are in Module 6.

Example 6 — Advertising from a non-resident supplier (transaction 13)

Meta and Google do not charge you UAE tax, so you charge it to yourself and reclaim it at the same time:

31 January 2026 | JE-013 | Ref: Meta and Google invoices for January
   Dr  6110 Marketing and advertising expense       15,000.00
       Cr  1010 Bank                                    15,000.00

31 January 2026 | JE-013b | Ref: reverse charge calculation
   Dr  1400 VAT — Input                                750.00
       Cr  2100 VAT — Output                               750.00
   Memo: reverse charge on advertising services from non-resident suppliers

4. Exercises

Use the Journal sheet in thenibras-academy-workbook.xlsx. Every entry must balance before you move on to the next one.

E2.1 — Direction (beginner). For each item: debit or credit, and for what amount?
(a) inventory increases by 12,000 — (b) collection from the payment gateway 8,400 — (c) recording output tax 1,750 — (d) recording a sales return 900 — (e) paying a supplier 15,000 — (f) recording depreciation 500.

E2.2 — Basic entries (beginner). Write the entries for transactions 2, 6, 7, 14 and 15 from the case study sheet in full, with date, reference and memo.

E2.3 — Cash on delivery (intermediate). Write the entries for transaction 9 and transaction 12 (the sale, then the settlement with the courier company). Watch out: the delivery charge is 15 dirhams × 100 orders + tax on it.

E2.4 — Error hunting (intermediate). Each entry contains exactly one mistake. Find it and correct it:

(a)  Dr  Bank                     83,580        Cr  Sales                    83,580
(b)  Dr  Shipping expense          9,000        Cr  Bank                      9,000
(c)  Dr  Rent expense             18,900        Cr  Bank                     18,900
(d)  Dr  Inventory                60,000        Cr  Purchases expense        60,000
(e)  Dr  Payment gateway fees      2,507.40     Cr  Bank                      2,507.40

E2.5 — Chart of accounts (intermediate). A store sells through Shopify, Amazon.ae and TikTok Shop, uses a local payment gateway and "buy now, pay later" (Tabby), and has its own warehouse plus storage at Amazon. Design a chart of accounts of no fewer than 28 accounts that lets you know the profitability of each channel separately. Justify in 3 lines why you separated the accounts the way you did.

E2.6 — Coupons (intermediate→advanced). The store sold a 500-dirham gift voucher on 20 January, and it was used in full on 12 February to buy a product costing 180. Write the entries on both dates. When is the revenue recognised, and why? (Hint: account 2300.)

5. Mini project — "A full month's journal"

Deliverable: a complete journal sheet for January 2026 for Nuwa Trading LLC, with all fifteen transactions + the reverse charge entries.

What is required:

1. Design your chart of accounts first, on a separate sheet (use the module's chart or improve on it).
2. Record the fifteen transactions in date order, with sequential entry numbers and document references.
3. Add a "check" column that calculates debit − credit for each entry automatically — it must be zero on every row.
4. Add a totals row at the end of the journal: total debits and total credits.
5. Write a note saying which entry was the hardest for you, and why.

Acceptance criteria:
- [ ] Every entry balances (the check column is all zeros).
- [ ] Total debits = total credits = 584,060.00 (the sum of all journal sides for transactions 1–15 together with the two reverse charge entries, before the cost of goods sold entries and the adjustments).
- [ ] No entry is without a date or a document reference.
- [ ] Revenue is recorded before tax, and the tax sits in its own separate account.
- [ ] Shipping and customs are capitalised into inventory, not expensed.

6. The test

10 questions · pass 7/10.

7. Completion standard

Mastery level (optional): take a real settlement statement from your own payment gateway or from an Amazon seller account, and take it apart into a full journal entry. Real platforms add items that do not exist in the example (dispute adjustments, balance holds, currency conversion adjustments) — notice how many of them would never have shown up in your books had you recorded only the net.