Dpa1013 Note Chapter 3

DOUBLE ENTRY

CONCEPT

CHAPTER 3

DOUBLE ENTRY SYSTEMS

This Double Systems has been used in all over the world by day.

This System has been developed to ensure all these records been kept in proper manner.

According to double entry principle, each transaction must be recorded in at least two ledger Account, with a debit to one more ledgers and a credit to one another ledger

INTRODUCTION

ACCOUNTING CYCLE

Document

Sources First Book Entry

Ledger

Trial Balance

Financial Report

Adjusted Trial

Balance

Accounting Cycle is a Process gathering and processing accounting data

It is call a complete cycle because the phase in accounting cycle keep repeating for each time and every transaction .

DOUBLE ENTRY SYSTEMSAn

Accounting equation

shows the relationship

between three

element –Assets ,liabi

lity and owner equity

Assets Liability

Owner Equity

What is double entry Systems

1.When transaction occurs ,it will impact on the element of its accounting equation

2.The relationship between assets and the financial resources used to finance

Contribution from Owners

Asset owned by business

Investment (Financial Resources)

External Sources-

Bank Loan ,Account Payable



The sum of all debits of the transaction must be equaled to the sum of credit of transactions

Debit entries will not necessary means an increase in the value of an account, and the credit will not necessary means a decrease value of account

TYPES AND FUNCTIONS OF ACCOUNT

Ledger

• Ledger accounts can be divided into 5 main categories:

• Revenues, Expenses, Assets , Liabilities ,Owner Equity


Revenue

• Revenue are income earned from business activities through the selling of goods and providing business

• Example revenue are sales revenue from services provided ,commission received ,interest received or

rent received.

Revenue

• However, revenue may be received from extraordinary business such as profit sale of used assets and dividend from investment

• The receipt of revenue will increase the profit and capital of a business entity

• A revenue account has a credit balance


Expenses

• Operating expenses refers to expenditure for formal business activities

• Examples are purchase of goods ,employer salaries and wages and freight charges

Expenses

• If expenses are not incurred as a result of business operation ,then the expenses are for non-ordinary business activities such as Loss of Sale used Assets, donation.

• An expenses have debit balance

Expenses

• The journal entries for payment of expenses:• Dt.Expenses• Ct. Cash \Bank


Assets Assets are resources or properties used to help operate

business Asset can be divided into 2 main categories- Non Current Assets and Currents Assets Assets account have a debit balance


Types of Assets

Types of Assets

Characteristics

Example Debit /balance

Fixed Assets a) Assets life is longer than one accounting period

b) Can be used repeatedly

c) Fixed Value

a) Land and Premises

b) Vehiclesc) Office

equipment

Debit Balance

Current Assets

a) Asset that are easily converted into cash

a) Cashb) Debtorc) Inventoriesd) Prepaid

Expensese) Accrued

revenue

Debit Balance


Liabilities Liabilities are debt owed by a business entity to external

party Liabilities can be divided into non current liabilities and non

current liabilities


Types of LiabilitiesLiabilities Characteristi

csExample Debit

/balance

Long term liabilities

a) Debts that must be paid off after one accounting period

a) Bank loanb) Debenturesc) Mortgage

Credit Balance

Current Liabilities

a) Debts that must be paid off within one accounting period

a) Creditorsb) Bank

Overdraft

Credit Balance


Owner Equity (Capital Account) The business owner will invest a certain amount of money or

assets into the business as the initial capital The total amount of cash or assets initially invested belong to

the business owner The owner equity is the business debt to the business owner

based on the amount invested by the business owner The total amount of owner equity will be determined by the

capital ,drawings and business performance.


Owner EquityEquity Characteristics Debit /balance

Capital a) Cash and Assets brought into the business by the owner

Credit Balance

Drawings a) Cash/goods/Assets taken by owner for personal use

b) Reduction of owner equity

Debit Balance

Profit Loss a) Calculate the Closing Account

b) Owner equity is increased if business generates a profit

Debit or Credit balance

Transactions and the double entry principles

Transaction Account Debited

Account Debited

a) Cash inflows Cash/Bank Sales/Debtor/Revenue/Capital

b) Cash outflows PurchaseCreditorExpenses Drawing Assets

Cash/Bank

c) Purchase of Goods: Cash Purchase Credit Purchase

PurchasePurchase

Cash/BankCreditors

d) Sales: Cash Sales Credit Sales

Cash/BankDebtor

SalesSales

e) Returns Inwards/Sales Returns Returns Inwards

Debtor

f) Returns Outwards/Purchase Creditors Returns Outwards



Account Credited

g)Assets: Business ResourcesPurchase of Assets (Cash)

(Credit)

Sales: Selling of used asset (Cash) (Credit)

AssetAsset

Cash/BankDebtors

Cash/BankCreditor

AssetAsset

h)Capital: Resources brought into business by owner

Cash Bank Assets

CashBankAsset

CapitalCapitalCapital

i) Drawings: Cash or goods assets withdrawn by the owner for personal use

Drawings CashBankPurchaseAsset



Account Credited

j) Payment of expenses Expenses Cash/Bank

k) Receipt of revenue Cash\Bank Revenue

l) Debtors:Customer who purchased goods on credit

Sale of Goods on credit to customer

Debtor returned goodsDiscount allowed

Received Cash or cheque from debtors

Debtor

Return Inwards

Discount Allowed

Cash\Bank

Sales

Debtor

Debtor

Debtor



Account Credited

m) Creditor: Supplier who supplied goods on creditPurchase of goods on creditReturn of goods to creditorDiscount receivedPayment to creditors by cash or cheque

PurchaseCreditorCreditorCreditor

CreditorReturn OutwardsDiscount ReceivedCash\Bank

n)Liabilities

Bank LoanApproved bank Overdraft

Cash\Bank-

Loan-

Double Entry Accounting

Example :Transaction and Double Entry Principle

Example: Transaction and Double Entry Principle

QUESTION & ANSWER SESSION

EXERCISE AND

TUTORIAL SESSION

Dpa1013 Note Chapter 3

Documents

Transcript of Dpa1013 Note Chapter 3