Ch 4 principles of double entry
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Transcript of Ch 4 principles of double entry
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ACC106 Chapter 3
PRINCIPLES OF DOUBLE ENTRY
( THE RECORDING PROCESS)
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LEARNING OBJECTIVES
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3.1 Introduction
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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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)
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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)
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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)
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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)
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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)
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DOUBLE ENTRY PRINCIPLES FOR TRADE DISCOUNT
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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)
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DOUBLE ENTRY PRINCIPLES FOR CASH DISCOUNT
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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
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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
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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)
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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)