Book Keeping - Theory for the course on accounting

Book Keeping - Theory for the course on accounting

1. THE DOUBLE ENTRY BOOKKEEPINGTHE DOUBLE ENTRY BOOKKEEPING
(SISTEM CATATAN BERGU)(SISTEM CATATAN BERGU)

2. 1.1.Explain what an account is and how it Explain what an account is and how it
helps in the recording process.helps in the recording process.
2.2.Define debits and credits and explain Define debits and credits and explain
their use in recording business their use in recording business
transactions.transactions.
3.3.Identify the basic steps in the Identify the basic steps in the
recording processrecording process..
Study ObjectivesStudy Objectives

3. DOUBLE ENTRY ACCOUNTINGDOUBLE ENTRY ACCOUNTING

Accounting is defined as :Accounting is defined as :

Art of recording, classifying and Art of recording, classifying and
summarizingsummarizing

In a significant mannerIn a significant manner

And in terms of moneyAnd in terms of money

Transactions and eventsTransactions and events

Which are of a financial characterWhich are of a financial character

And interpreting the results thereof. And interpreting the results thereof.

4. The AccountThe Account
Debits and Debits and
creditscredits
Expansion Expansion
of basic of basic
equationequation
Steps in the Steps in the
Recording Recording
ProcessProcess
The Recording The Recording
Process Process
IllustratedIllustrated
The Trial The Trial
BalanceBalance
Limitations Limitations
of a trial of a trial
balancebalance
Locating Locating
errorserrors
Use of Use of
dollar signsdollar signs
Summary Summary
illustration illustration
of of
journalizing journalizing
and postingand posting
The Recording ProcessThe Recording Process
JournalJournal
LedgerLedger

5. Double entry book keepingDouble entry book keeping
Art enables one to attain objectivesArt enables one to attain objectives

Recording of transaction in orderly mannerRecording of transaction in orderly manner
Classifying refers to grouping of accountsClassifying refers to grouping of accounts

Summarizing thru Trial Balance, Trading, Summarizing thru Trial Balance, Trading,
Profit and Loss Account and Balance Sheet.Profit and Loss Account and Balance Sheet.
Terms of money : common language that is Terms of money : common language that is
through the help of money example : through the help of money example :

6. Double entryDouble entry

Starts with recording and ends with Starts with recording and ends with
presentation of financial information.presentation of financial information.

Each transaction or event has two aspects Each transaction or event has two aspects
or sides : DEBIT and CREDIT or sides : DEBIT and CREDIT

Accounting trail : it’s a sequence of Accounting trail : it’s a sequence of
activities in an accounting process activities in an accounting process

7. Account Name
Debit / Dr. Credit / Cr.
Record of increases and decreases
in a specific asset, liability, equity,
revenue, or expense item.
Debit = “Left”
Credit = “Right”
AccountAccount
An Account can An Account can
be illustrated in a be illustrated in a
T-Account T-Account
form.form.
LO 1 Explain what an account is and how it helps in the recording process.LO 1 Explain what an account is and how it helps in the recording process.
The AccountThe Account

8. THE ACCOUNTS FOR DOUBLE ENTRYTHE ACCOUNTS FOR DOUBLE ENTRY
10 10
Equity
kettle account bank account
Assets Liabilities
The left hand side is called debit side; the right side
is called the credit side.(T- account)
Eg. If you paid Rs.10 by cheque for kettle, so
debit the kettle account and credit bank account

9. Double-entry Double-entry accounting system
Each transaction must affect two or more
accounts to keep the basic accounting equation
in balance.
Recording done by debiting at least one
account and crediting another.
DEBITS must equalmust equal CREDITS.
LO 2 Define debits and credits and explain their LO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.
Debits and CreditsDebits and Credits

10. In terms of asset, liabilities, and In terms of asset, liabilities, and
capitalcapital
1. To increase an asset we make debit entry.
2. To decrease an asset we make a credit entry
3. To increase a liability/capital account we make a
credit entry
4. To decrease a liability/capital account we make a
debit entry.

11. Account Name
Debit / Dr. Credit / Cr.
If Debits are greater thangreater than Credits, the account
will have a debit balance.
$10,000 Transaction #2$3,000
15,00015,000
8,000Transaction #3
Balance
Transaction #1
Debits and CreditsDebits and Credits
LO 2 Define debits and credits and explain their LO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.

12. Account Name
Debit / Dr. Credit / Cr.
If Debits are smaller thansmaller than Credits, the account
will have a credit balance.
$10,000 Transaction #2$3,000
Balance
Transaction #1
Debits and CreditsDebits and Credits
1,0001,000
8,000 Transaction #3

13. Expansion of the Basic Expansion of the Basic
EquationEquation
Relationship among the assets, liabilities and Relationship among the assets, liabilities and
owners’ equity of a business: owners’ equity of a business:
The equation must be in balance after every The equation must be in balance after every
transaction. For every transaction. For every DebitDebit there must be a there must be a
CreditCredit..
Illustration 2-11
Assets Liabilities= Owners’ Equity
Basic
Equation
Expanded
Basic
Equation
+

14. Debits:Debits:
a.a.increase both assets and liabilities.increase both assets and liabilities.
b.b.decrease both assets and liabilities.decrease both assets and liabilities.
c.c.increase assets and decrease increase assets and decrease
liabilities.liabilities.
d.d.decrease assets and increase decrease assets and increase
liabilities.liabilities.
Review QuestionReview Question
Debits and Credits SummaryDebits and Credits Summary
LO 2 Define debits and credits and explain their LO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.

15. Assets - Debits should
exceed credits.
Liabilities – Credits
should exceed debits.
The normal balance is on
the increase side.
LO 2 Define debits and credits and explain their LO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.
Assets and LiabilitiesAssets and Liabilities
Chapter
3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter
3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance

16. Owner’s investments and
revenues increase owner’s
equity (credit).
Owner’s drawings and expenses
decrease owner’s equity (debit).
LO 2 Define debits and credits and explain their LO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.
Owners’ EquityOwners’ Equity
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owners’ CapitalOwners’ Capital
Chapter
3-23
Owners’ DrawingOwners’ Drawing
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owners’ EquityOwners’ Equity

17. Accounts that normally have debit balances Accounts that normally have debit balances
are:are:
a.a.assets, expenses, and revenues.assets, expenses, and revenues.
b.b.assets, expenses, and owner’s capital.assets, expenses, and owner’s capital.
c.c.assets, liabilities, and owner’s drawings.assets, liabilities, and owner’s drawings.
d.d.assets, owner’s drawings, and expenses.assets, owner’s drawings, and expenses.
Review QuestionReview Question
Debits and Credits SummaryDebits and Credits Summary
LO 2 Define debits and credits and explain their LO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.

18. Eg 1…..Eg 1…..
oThe owner starts the business with Rs.10,000 in
cash on 1 August 2008.
oThe effect…
EffectEffect ActionAction
1. Increases the asset of 1. Increases the asset of
cashcash
Debit the cash Debit the cash
accountaccount
2. Increases the 2. Increases the
capitalcapital
Credit the capital Credit the capital
accountaccount

19. Answer…Answer…
AUG. 1, 2008 AUG. 1,2008
Capital 10,000 Cash 10,000
Cash Capital

20. Eg 2…..Eg 2…..
oA van is bought for Rs.4,500 cash on 2 August
2008.
oThe effect…
EffectEffect ActionAction
1. Increases the asset of 1. Increases the asset of
vanvan
Debit the van accountDebit the van account
2. Decreases the asset 2. Decreases the asset
of cashof cash
Credit the cash Credit the cash
accountaccount

21. Answer…Answer…
AUG. 2,2008 AUG. 2,2008
Cash 4,500 Van 4,500
Van Cash

22. Eg 3…..Eg 3…..
oFixtures (e.g. shelves) are bought on credit from
shop Fitters for Rs.1,250 on 3 August 2008.
oThe effect…
EffectEffect ActionAction
1. Increases the asset of 1. Increases the asset of
fixturesfixtures
Debit the fixtures Debit the fixtures
accountaccount
2. Increases the 2. Increases the
liability of Shop liability of Shop
Fitters.Fitters.
Credit the Shop Fitters Credit the Shop Fitters
accountaccount

23. Answer…Answer…
AUG.2,2008 AUG.2,2008
Shop Fitters 1,250 Fixtures 1,250
Fixtures Shop Fitters

24. Eg 4…..Eg 4…..
oPaid the amount owing to Shop Fitters in cash
on 17 August 2008.
oThe effect…
EffectEffect ActionAction
1. Decreases the 1. Decreases the
liability of Shop Fittersliability of Shop Fitters
Debit the Shop Debit the Shop
Fixtures accountFixtures account
2. Decreases the asset 2. Decreases the asset
of cash.of cash.
Credit the cash Credit the cash
accountaccount

25. Answer…Answer…
AUG.17,2008 AUG.17,2008
cash 1,250 Fitter1,250
Shop Fitters Cash

26. Complete the following tableComplete the following table
Account to Account to
be debitedbe debited
Account to Account to
be creditedbe credited
a.Bought office machinery on credit a.Bought office machinery on credit
from D Isaacs Ltd.from D Isaacs Ltd.
b. The proprietor paid a creditor, C b. The proprietor paid a creditor, C
Jones, from his private funds.Jones, from his private funds.
c. A debtor, N Fox, paid us in cash.c. A debtor, N Fox, paid us in cash.
d. Repaid part of loan from P Exeter by d. Repaid part of loan from P Exeter by
cheque.cheque.
e. Returned some of office machinery to e. Returned some of office machinery to
D D
Isaacs Ltd.Isaacs Ltd.
f. A debtor, N Lyn, pays us by cheque.f. A debtor, N Lyn, pays us by cheque.
g. Bought van by cash.g. Bought van by cash.
REVIEW QUESTIONS