ACC106 Chapter 3

PRINCIPLES OF DOUBLE ENTRY

( THE RECORDING PROCESS)

LEARNING OBJECTIVES

3.1 Introduction

DOUBLE ENTRY PRINCIPLESClassification 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

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

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

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

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

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

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

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

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

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

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

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

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

DOUBLE ENTRY PRINCIPLES FOR STOCK (cont’d)

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/cCR 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)

DOUBLE ENTRY PRINCIPLES FOR TRADE DISCOUNT

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

DOUBLE ENTRY PRINCIPLES FOR TRADE DISCOUNT (cont’d)

DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT

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/cCR Debtor a/c

DR Bank a/cCR Debtor

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 AllowedAhmad (debtor) paid RM3,000 by cheque after deducting cash discount of 2%

DR Discount Allowed a/c RM60CR Debtor a/c RM60

DR Bank a/c RM2940CR Debtor a/c RM2940

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)

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

DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT (cont’d)