WILEY

IFRS EDITION

Prepared by
Coby Harmon
Nguyen Tan Tai 3-1
CHAPTER

3 Accounts and Double-

entry accounting
LEARNING OBJECTIVES
1. Explain what an account is and how it helps in the recording process.
2. Define debits and credits and explain their use in recording business
transactions.
3. Identify the basic steps in the recording process.
4. Explain what a journal is and how it helps in the recording process.
5. Explain what a ledger is and how it helps in the recording process.
6. Explain what posting is and how it helps in the recording process.
7. Explain what a chart of accounts, journal entries, correcting entries and
closing accounts are.
8. Prepare a trial balance and explain its purposes. 3-2
 The Account
Learning
 Record of increases and decreases in Objective 1
Explain what an
a specific asset, liability, stockholders’ account is and
equity, revenue, or expense item. how it helps in
the recording
 Debit = “Left” process.
 Credit = “Right”
Account Name
Debit / Dr. Credit / Cr.

An account can
be illustrated in a
T-account form.

3-3
STANDARD FORM OF ACCOUNT

3-4
 Debits and Credits
Learning
DEBIT AND CREDIT PROCEDURES Objective 2
Define debits and
credits and
explain their use
in recording
Double-entry system business
transactions.
 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 at least one other account.
 DEBITS must equal CREDITS.

3-5
 Debits and Credits

If the sum of Debit entries are greater than the sum of

Credit entries, the account will have a debit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

Transaction #3 8,000

Balance $15,000

3-6
 Debits and Credits

If the sum of Credit entries are greater than the sum of

Debit entries, the account will have a credit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

8,000 Transaction #3

Balance $1,000

3-7
 The account (in Vietnam)

Cash on hand
Beginning balance:

Sum of Debit entries Sum of Credit entries

Ending balance:

Ending balance = Beginning balance + Total on increase side –

Total on decrease side
3-8
Debits and Credits

Assets
Debit / Dr. Credit / Cr.

 Assets - Debits should exceed

Normal Balance credits.
Chapter
3-23
 Liabilities – Credits should
exceed debits.
Liabilities
Debit / Dr. Credit / Cr.
 Normal balance is on the
increase side.

Normal Balance

Chapter
3-24

3-9
 Debits and Credits

Equity  Issuance of share capital and

Debit / Dr. Credit / Cr.
revenues increase equity (credit).
 Dividends and expenses decrease
Normal Balance
equity (debit).
(Different
Chapter
3-25

from VN)

Share Capital-Ordinary Retained Earnings Dividends

Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.

Normal Balance Normal Balance Normal Balance

Chapter Chapter Chapter

3-25 3-25 3-23

3-10
Debits and Credits

Revenues
Debit / Dr. Credit / Cr.

 The purpose of earning revenues

Normal Balance
is to benefit the shareholders.

Chapter
3-26
 The effect of debits and credits on
revenue accounts is the same as
Expenses
their effect on equity.
Debit / Dr. Credit / Cr.
 Expenses have the opposite
effect: expenses decrease equity.
Normal Balance

Chapter
3-27

3-11
 Debits and Credits
Liabilities
Debit / Dr. Credit / Cr.
Normal Normal
Balance Balance
Debit Credit Normal Balance

Assets Chapter
3-24

Equity
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-23

Expenses Chapter
3-25
Revenues
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-27 Chapter
3-26

3-12
 Summary of Debit/Credit Rules

Statement of
Financial Position Income Statement
Asset = Liability + Equity Revenue - Expense

Debit

Credit

3-13
Summary of Debit/Credit Rules

Question
Debits:

a. increase both assets and liabilities.

b. decrease both assets and liabilities.

c. increase assets and decrease liabilities.

d. decrease assets and increase liabilities.

3-14
Summary of Debit/Credit Rules

Question
Accounts that normally have debit balances are:

a. assets, expenses, and revenues.

b. assets, expenses, and equity.

c. assets, liabilities, and dividends.

d. assets, dividends, and expenses.

3-15
Summary of Debit/Credit Rules

Relationship among the assets, liabilities, and equity of a

business:
Illustration
Summary of debit/credit rules

The equation must be in balance after every transaction.

Total Debits must equal total Credits.

3-16
 The basic steps in the recording
process
Learning
Business documents, such as a sales Objective 3
Identify the basic
receipt, a check, or a bill, provide evidence steps in the
of the transaction. recording
process.

Analyze each transaction Enter transaction in a journal Transfer journal information to

ledger accounts
Illustration
The recording process

3-17
The Journal
Learning
Objective 4
Explain what a
journal is and
 Book of original entry. how it helps in
the recording
 Transactions recorded in chronological process.

order.
 Contributions to the recording process:
1. Discloses the complete effects of a transaction.

2. Provides a chronological record of transactions.

3. Helps to prevent or locate errors because the debit

and credit amounts can be easily compared.
3-18
The Journal

JOURNALIZING - Entering transaction data in the journal.

Illustration: On September 1, shareholders invested €15,000 cash
in the corporation in exchange for ordinary shares, and Softbyte
purchased computer equipment for €7,000 cash.

GENERAL JOURNAL
Date Account Title Ref. Debit Credit
Sept. 1 Cash 15,000
Share Capital—Ordinary 15,000

Equipment 7,000
Cash 7,000
3-19
The Journal

SIMPLE AND COMPOUND ENTRIES

Illustration: On July 1, Tsai Company purchases a delivery truck
costing NT$420,000. It pays NT$240,000 cash now and agrees to
pay the remaining NT$180,000 on account. Illustration
Compound journal entry

GENERAL JOURNAL
Date Account Title Ref. Debit Credit
July 1 Equipment 420,000
Cash 240,000
Accounts Payable 180,000

3-20
> DO IT!

As president and sole shareholder, Kate Browne engaged in

the following activities in establishing her salon, Hair It Is
Company SA.

1. Opened a bank account in the name of Hair It Is Company

SA and deposited €20,000 of her own money in this
account in exchange for ordinary shares.

2. Purchased equipment on account (to be paid in 30 days) for

a total cost of €4,800.

3. Interviewed three applicants for the position of beautician.

Prepare the entries to record the transactions.

3-21
The Ledger
Learning
Objective 5
Explain what a
ledger is and
 General Ledger contains all the asset, how it helps in
liability, and equity accounts. the recording
process.

Illustration
The general ledger
3-22
ACCOUNTING ACROSS THE ORGANIZATION
What Would Sam Do? Wal-Mart Stores, Inc. (USA)
In his autobiography, Sam Walton described the double-entry
accounting system he used when Wal-Mart Stores, Inc. (USA) was
just getting started: “We kept a little pigeonhole on the wall for the
cash receipts and paperwork of each [Wal-Mart] store. I had a blue
binder ledger book for each store. When we added a store, we
added a pigeonhole. We did this at least up to twenty stores. Then
once a month, the bookkeeper and I would enter the merchandise,
enter the sales, enter the cash, and balance it.” Today, the
company operates more than 7,000 stores worldwide under various
names. That’s a lot of “pigeonholes.”
Source: Sam Walton, Made in America (New York: Doubleday, 1992), p.
53.

3-23
The Ledger

STANDARD FORM OF ACCOUNT Illustration

Three-column form
of account

3-24
Posting
Learning
Objective 6
Explain what
posting is and
how it helps in
the recording
process.

Transferring
journal entries
to the ledger
accounts.

Illustration
Posting a journal
3-25
entry
Posting

Question
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.

3-26
 The Recording Process Illustrated

Follow these steps:

1. Determine what
type of account is
involved.
2. Determine what
items increased or
decreased and by
how much.
3. Translate the
increases and
decreases into
debits and credits.
Illustration
Investment of cash
by shareholders

3-27
Illustration
Purchase of office equipment 3-28
Illustration
Receipt of cash
for future service

(Different
from VN)
3-29
Illustration 3-30
Payment of monthly rent
 Illustration
Payment for
insurance

(Different
from VN)
3-31
Illustration 3-32
Purchase of supplies on credit
 The Recording Process Illustrated

Illustration
Hiring of employees

3-33
 (Different
from VN)

Illustration
Declaration and payment of dividend 3-34
 (Different
from VN)
Illustration
3-35
Payment of salaries
Illustration 3-36
Receipt of cash for services performed
Illustration 3-37
General journal entries
Illustration
General journal entries

3-38
Illustration
General ledger
3-39
> DO IT!

Como Company SpA recorded the following transactions in a general

journal during the month of March. Post these entries to the Cash
account.

Mar. 4 Cash 2,280

Service Revenue 2,280
15 Salaries and Wages Expense 400
Cash 400
19 Utilities Expense 92
Cash 92

3-40
Chart of accounts
Learning
A chart of accounts is a listing of the
Objective 7
complete ledger account titles and their Explain what a
chart of
related numbers, and is maintained in both accounts,
journal entries,
manual and computerised systems correcting
entries and
closing accounts
are

3-41
Journal entries

A journal entry, in accounting, is the logging of a

transaction into accounting journal items. The journal
entry can consist of several recordings, each of which is
either a debit or a credit. The total of the debits must
equal the total of the credits

Ex:
Dr 152: 200.000
Cr 331: 200.000

3-42
 The Journal Entry Process Illustrated

Follow these steps:

1. Determine what type of account is involved.
2. Determine what items increased or decreased and by how
much.
3. Translate the increases and decreases into debits and
credits.
4. Determine account code for each account.

3-43
 Correcting entries

“Blue entries”: entries in positive account value  usually for

increasing adjustment.

“Red entries”: entries in negative account value  usually for

decreasing adjustment.

3-44
 Closing accounts

Closing an account is transferring the account balance to

another account. The closing process results in the “giving
account” ending the accounting period in a zero balance.
Journal entries made to to close the accounts are called
closing entries.
Notice: “Same side” rule
• Debit balance on A  Debit balance on B
• Credit balance on A  Credit balance on B

3-45
 The Trial Balance
Learning
A trial balance Objective 8
Prepare a trial
balance and
 is a list of accounts and their balances explain its
at a given time. purposes.

 proves the mathematical equality of debits and credits

after posting.

The steps for preparing a trial balance are:

1. List the account titles and their balances.
2. Total the debit and credit columns.
3. Prove the equality of the two columns.

3-46
Trial Balance
Illustration
A trial balance

3-47
Trial Balance
Illustration
A trial balance

3-48
Limitations of a Trial Balance

Trial balance may balance even when:

1. A transaction is not journalized.
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting.
5. Offsetting errors are made in recording the amount of a
transaction.

3-49
> DO IT!

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Copyright

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