Ch 4 principles of double entry

1. ACC106
Chapter 3
PRINCIPLES OF DOUBLE ENTRY
( THE RECORDING PROCESS)

2. LEARNING OBJECTIVES

3. 3.1 Introduction

4. DOUBLE ENTRY PRINCIPLES
Classification DEBIT CREDIT
Assets increase in Assets decrease in Assets
Liability decrease in Liabilities increase in Liabilities
Capital/ Owner’s equitydecrease in Owner’s Equityincrease 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/cRM 1,000
Cr. Bank a/c RM 1,000
Equipment a/c
Jan 1 Bank 1,000
Bank a/c
Jan 1Equipment 1,000

6. DOUBLE ENTRY PRINCIPLES FOR
LIABILITIES
The double entry principle for liabilities is:
Liabilities a/c
Debit Credit
To record decrease in LiabilitiesTo record increase in Liabilities
i.e Jan 2 Bought equipment on credit from Streamyx Sdn. Bhd. RM 2,000
Dr. Equipment a/cRM 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 2Equipment 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 EquityTo 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 1Bank 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 6Salary 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 IncreaseDebit Purchases a/c
Sales of goods Sales Revenue Increase Credit Sales a/c
Purchases Returns Purchase Expense decreaseCredit Purchase Returns a/c
Sales Returns Sales Revenue decrease Debit Sales Return a/c

11. Example
Transactions Effects Double entry
Purchased goods:
Purchased goods on credit
from Siti Ent
Purchase Expense Increase
Liability creditor increase
DR Purchases a/c
CR Creditor (Siti) a/c
Sales of goods:
Credit Sales to Zila
Sales Revenue Increase
Asset debtor increase
DR Debtor (Zila) a/c
CR Sales a/c
Purchases Returns:
Returned goods to Siti
Enterprise
Liability creditor decrease
Purchase Expense decrease
DR Creditor (Siti) a/c
CR Purchase Returns a/c
Sales Returns:
Zila returned defective goods
Sales Revenue decrease
Asset debtor decrease
DR Sales Return a/c
CR Debtor (Zila) a/c

12. Purchases a/c
Jan 6 Creditor - Siti Enterprise 2, 000
Creditor - Siti Enterprise a/c
Jan 6Purchases 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 6Purchases 2,000
Purchases Return a/c
Jan 7Creditor 100
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)

13. i.e 3. Jan 8 Credit Sales to Zila RM 400
Journal entries
Dr. Debtor – Zila a/cRM 400
Cr. Sales a/c RM 400
Debtor – Zila a/c
Jan 8 Sales 400
Sales a/c
Jan 8Debtor - Zila 400
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)

14. i.e 4. Jan 15 Zila returned defective goods worth RM 40
Journal entries
Dr. Return Inwards a/cRM 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
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)

15. i.e 5. Jan 17 Bought goods from Jenny paying by cheque RM 400
Journal entries
Dr. Purchases a/cRM 400
Cr. Bank a/c RM 400
Purchases a/c
Jan 17 Bank 400
Bank a/c
Jan 17 Purchases 400
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)

16. 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
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)

17. TRANSPORTATION COST FOR
PURCHASE & SALES OF GOODS
Transportation Costs DOUBLE ENTRY ACCOUNT TO RECORD
Freight or carriage
outwards:
The cost of transport paid to
send the goods sold to the
buyer’s premises
DR Carriage outwards a/c
CR Cash/ Bank a/c
Trading a/c
(as part of the cost of goods
purchased)
Freight or carriage
inwards:
The cost of transport paid to
bring in the goods bought to
the business premises
D R Carriage inwards a/c
C R Cash/ Bank a/c
Profit & Loss a/c
(expenses)

18. DOUBLE ENTRY PRINCIPLES FOR
TRADE DISCOUNT

19. Journal entries
Dr. Purchases a/cRM 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
DOUBLE ENTRY PRINCIPLES FOR TRADE
DISCOUNT (cont’d)

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
CR Discount Receive a/c
DR Creditor a/c
CR bank a/c
Discount Allowed DR Discount Allowed a/c
CR Debtor a/c
DR Bank a/c
CR Debtor

22. DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT
Example: Journal entry 1 Journal entry 2
Discount Received:
Paid supplier - Jenny
Trading RM1900 by
cheque after deducting
cash discount 2%
DR Creditor (Jenny) a/c
RM38
CR Discount Receive a/c
RM38
DR Creditor (Jenny) a/c
RM1862
CR Bank a/c
RM1862
Discount Allowed
Ahmad (debtor) paid
RM3,000 by cheque after
deducting cash discount
of 2%
DR Discount Allowed a/c
RM60
CR Debtor a/c
RM60
DR Bank a/c
RM2940
CR Debtor a/c
RM2940

23. 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
DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT (cont’d)

24. Debtor - Ahmad
Jan 19Sales 3,000 Jan 31 Discount allowed 60
Jan 31 Bank 2,940
3,000 3,000
Discount Allowed a/c
Jan 31Debtor – Ahmad 60
Bank a/c
Jan 31 Debtor – Ahmad 2,940
DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT (cont’d)