Ch 4 principles of double entry
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The document discusses the principles of double entry accounting. It explains the debit and credit rules for assets, liabilities, owner's equity, expenses, and revenue. It provides examples of journal entries for transactions involving these accounts. It also covers concepts like stock, transportation costs, trade discounts, and cash discounts.
Ch 4 principles of double entry
- 1. ACC106 Chapter 3 PRINCIPLES OF DOUBLE ENTRY ( THE RECORDING PROCESS)
- 4. DOUBLE ENTRY PRINCIPLES Classification DEBIT CREDIT Assets increase in Assets decrease in Assets Liability decrease in Liabilities increase in Liabilities Capital/ Owner’s equity decrease in Owner’s Equity increase in Owner’s Equity Revenue decrease in Revenue increase in Revenue Expenses increase in Expenses decrease in Expenses
- 5. DOUBLE ENTRY PRINCIPLES FOR ASSETS The double entry principle for assets is: Assets a/c Debit Credit To record increase in Assets To record decrease in Assets i.e Jan 1 Bought equipment paying by cheque RM 1,000 Dr. Equipment a/c RM 1,000 Cr. Bank a/c RM 1,000 Equipment a/c Jan 1 Bank 1,000 Bank a/c Jan 1 Equipment 1,000
- 6. DOUBLE ENTRY PRINCIPLES FOR LIABILITIES The double entry principle for liabilities is: Liabilities a/c Debit Credit To record decrease in Liabilities To record increase in Liabilities i.e Jan 2 Bought equipment on credit from Streamyx Sdn. Bhd. RM 2,000 Dr. Equipment a/c RM 2,000 Cr. Creditor a/c – Streamyx Sdn. Bhd. RM 2,000 Equipment a/c Jan 2 Creditor 2,000 Creditor a/c – Streamyx Sdn. Bhd a/c Jan 2 Equipment 2,000
- 7. DOUBLE ENTRY PRINCIPLES FOR OWNER’S EQUITY The double entry principle for Owner’s Equity is: Owner’s Equity a/c Debit Credit To record decrease in Owner’s Equity To record increase in Owner’s Equity i.e Jan 1 The owner started business with RM 10,000 cash in bank Dr. Bank a/c RM 10,000 Cr. Capital a/c. RM 10,000 Bank a/c Jan 1 Capital 10,000 Capital a/c Jan 1 Bank 10,000
- 8. DOUBLE ENTRY PRINCIPLES FOR EXPENSES I) The double entry principle for Expenses is: Expenses a/c Debit Credit To record increase in Expenses To record decrease in Expenses i.e Jan 6 Paid salary by cheque RM 300 Dr. Salary a/c RM 300 Cr. Bank a/c. RM 300 Salary a/c Jan 6 Bank 300 Bank a/c Jan 6 Salary 300
- 9. DOUBLE ENTRY PRINCIPLES FOR REVENUE II) The double entry principle for Revenue is: Revenue a/c Debit Credit To record decrease in Revenue To record increase in Revenue i.e Jan 8 Received cash for house rental RM 450 Dr. Cash a/c RM 450 Cr. Rent Received a/c. RM 450 Cash a/c Jan 8 Rent received 450 Rent Received a/c Jan 8 Cash 450
- 10. DOUBLE ENTRY PRINCIPLES FOR STOCK The double entry are as follows: Transactions Effects Double entry Purchased of goods Purchase Expense Increase Debit Purchases a/c Sales of goods Sales Revenue Increase Credit Sales a/c Purchases Returns Purchase Expense decrease Credit Purchase Returns a/c Sales Returns Sales Revenue decrease Debit Sales Return a/c
- 11. Example Transactions Effects Double entry Purchased goods: Purchase Expense Increase DR Purchases a/c Purchased goods on credit Liability creditor increase CR Creditor (Siti) a/c from Siti Ent Sales of goods: Sales Revenue Increase DR Debtor (Zila) a/c Credit Sales to Zila Asset debtor increase CR Sales a/c Purchases Returns: Liability creditor decrease DR Creditor (Siti) a/c Returned goods to Siti Purchase Expense decrease CR Purchase Returns a/c Enterprise Sales Returns: Sales Revenue decrease DR Sales Return a/c Zila returned defective goods Asset debtor decrease CR Debtor (Zila) a/c
- 12. DOUBLE ENTRY PRINCIPLES FOR STOCK (cont’d) Purchases a/c Jan 6 Creditor - Siti Enterprise 2, 000 Creditor - Siti Enterprise a/c Jan 6 Purchases 2,000 i.e 2. Jan 7 Returned goods to Siti Enterprise RM 100 Journal entries Dr. Creditor - Siti Enterprise RM 100 Cr. Purchases Return a/c RM 100 Creditor - Siti Enterprise a/c Jan 7 Purchases Return 100 Jan 6 Purchases 2,000 Purchases Return a/c Jan 7 Creditor 100
- 13. DOUBLE ENTRY PRINCIPLES FOR STOCK (cont’d) i.e 3. Jan 8 Credit Sales to Zila RM 400 Journal entries Dr. Debtor – Zila a/c RM 400 Cr. Sales a/c RM 400 Debtor – Zila a/c Jan 8 Sales 400 Sales a/c Jan 8 Debtor - Zila 400
- 14. DOUBLE ENTRY PRINCIPLES FOR STOCK (cont’d) i.e 4. Jan 15 Zila returned defective goods worth RM 40 Journal entries Dr. Return Inwards a/c RM 40 Cr. Debtor – Zila a/c RM 40 Return Inwards a/c Jan 15 Debtor – Zila 40 Debtor – Zila a/c Jan 8 Sales 400 Jan 15 Return Inwards 40
- 15. DOUBLE ENTRY PRINCIPLES FOR STOCK (cont’d) i.e 5. Jan 17 Bought goods from Jenny paying by cheque RM 400 Journal entries Dr. Purchases a/c RM 400 Cr. Bank a/c RM 400 Purchases a/c Jan 17 Bank 400 Bank a/c Jan 17 Purchases 400
- 16. DOUBLE ENTRY PRINCIPLES FOR STOCK (cont’d) i.e 6. Jan 19 Cash sales to Ali Baba RM 240 Journal entries Dr. Cash a/c RM 240 Cr. Sales a/c RM 240 Cash a/c Jan 19 Sales 240 Sales a/c Jan 19 Cash 240
- 17. TRANSPORTATION COST FOR PURCHASE & SALES OF GOODS Transportation Costs DOUBLE ENTRY ACCOUNT TO RECORD Freight or carriage DR Carriage outwards a/c Trading a/c outwards: CR Cash/ Bank a/c (as part of the cost of goods The cost of transport paid to purchased) send the goods sold to the buyer’s premises Freight or carriage D R Carriage inwards a/c Profit & Loss a/c inwards: C R Cash/ Bank a/c (expenses) The cost of transport paid to bring in the goods bought to the business premises
- 18. DOUBLE ENTRY PRINCIPLES FOR TRADE DISCOUNT
- 19. DOUBLE ENTRY PRINCIPLES FOR TRADE DISCOUNT (cont’d) Journal entries Dr. Purchases a/c RM 1,900 Cr. Creditor - Teepah Trading RM 1,900 Purchases a/c Jan 25 Creditor – Teepah Trading 1,900 Creditor - Teepah Trading a/c Jan 25 Purchases 1,900
- 20. DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT
- 21. DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT Journal entry 1 Journal entry 2 Discount Received DR Creditor a/c DR Creditor a/c CR Discount Receive a/c CR bank a/c Discount Allowed DR Discount Allowed a/c DR Bank a/c CR Debtor a/c CR Debtor
- 22. DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT Example: Journal entry 1 Journal entry 2 Discount Received: DR Creditor (Jenny) a/c DR Creditor (Jenny) a/c Paid supplier - Jenny RM38 RM1862 Trading RM1900 by cheque after deducting CR Discount Receive a/c CR Bank a/c cash discount 2% RM38 RM1862 Discount Allowed DR Discount Allowed a/c DR Bank a/c Ahmad (debtor) paid RM60 RM2940 RM3,000 by cheque after CR Debtor a/c CR Debtor a/c deducting cash discount RM60 RM2940 of 2%
- 23. DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT (cont’d) Creditor – Jenny Trading Jan31 Discount Received 38 Jan 18 Purchases 1,900 Jan 31 Bank 1,862 1,900 1,900 Discount Received a/c Jan 31 Jenny Trading 38 Bank a/c Jan 31 Jenny Trading 1,862
- 24. DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT (cont’d) Debtor - Ahmad Jan 19 Sales 3,000 Jan 31 Discount allowed 60 Jan 31 Bank 2,940 3,000 3,000 Discount Allowed a/c Jan 31 Debtor – Ahmad 60 Bank a/c Jan 31 Debtor – Ahmad 2,940