CHAPTER 3 :DOUBLE ENTRY

PRINCIPLES AND BALANCING

OFF
PN. AZURA IBRAHIM
DOUBLE ENTRY CONCEPT
● The double-entry is the basis of an accounting recording
system.
● An in-depth understanding of this system is needed in
order to maintain a correct organized and accurate
bookkeeping records.
● According to double-entry system, each transaction must
be recorded in at least two ledger accounts, with a debit to
one or more and a credit to one or more ledgers.
 ACCOUNTING EQUATION &
DOUBLE-ENTRY SYSTEM

Accounting ASSETS = LIABILITIES + OWNER’S EQUITY

Equation

Double-entry Debit for increase Credit for increase

System Credit for decrease Debit for decrease
 ACCOUNTING EQUATION &
DOUBLE-ENTRY SYSTEM

Assets/Expenses/Drawings Account

RM RM
Balance b/d XX
Increase in value XX Decrease in value XX
(+) (-)
 ACCOUNTING EQUATION &
DOUBLE-ENTRY SYSTEM

Liabilities/Capital/Revenues Account
RM RM
Balance b/d XX
Decrease in value XX Increase in value XX
(-) (+)
 ACCOUNTING EQUATION &
DOUBLE-ENTRY SYSTEM

Normal Balance
Account type
Debit Credit
Assets √
Expenses √
Drawings √
Liabilities √
Capital √
Revenue √
 DOUBLE ENTRY CONCEPTS

Functions of Assets accounts:

● Assets are resources or properties used to help operate a
business
● Assets are divided into 2 main categories:
1. Non-current assets
2. Current assets
• Assets accounts have a debit balance
 DOUBLE ENTRY CONCEPTS

Functions of Liabilities accounts:

● Liabilities are debts owed by a business entity to external
parties.
● Liabilities are divided into 2 main categories:
1. Non-current liabilities
2. Current liabilities
• Liabilities accounts have a credit balance
 DOUBLE ENTRY CONCEPTS
Functions of Owner’s equity (Capital) accounts:
● The business owner will invest a certain amount of money or
assets into the business as initial capital.
● The total amount of cash or assets initially invested belongs
to the business owner.
● Owner’s equity is the business’ debt to the owner based on
the amount invested.
● The total amount of owner’s equity will be determined by the
capital, drawings and business performance (profit or loss)
● Owner’s equity accounts have a credit balance
 DOUBLE ENTRY CONCEPTS

Functions of Revenues accounts:

● Revenues are income earned from business activities
through the selling of goods or services.
● E.g.: sale of goods, commission received, interest
received or rent received.
● The receipt of revenues will increase the profit and capital
of a business.
● A revenue accounts will have a credit balance

Dr Cash/Bank
Cr Revenues
 DOUBLE ENTRY CONCEPTS
Functions of Expenses accounts:
● Expenses are money that are paid or will be paid to operate a business.
● Expenses are divided into 2 categories:
1. Purchase expenses – expenses occurred during purchase of goods
(carriage inwards, purchase duty)
2. Operating expenses – expenditure for normal business activities
(rent, salaries, insurance)
• Expenses will reduced the profit and capital of a business
• Expenses accounts will have a debit balance

Dr Expenses
Cr Cash/Bank
 Recording Transaction Using T-Accounts

Example 1:
Jan 1 Bought computer worth RM2,500 by cheque.

Journal entries:
Jan 1 Dr Computer Accounts RM2,500
Cr Bank Accounts RM2,500
 Computer Accounts

Date Particulars RM Date Particular RM

Jan-01 Bank 2,500

DEBIT

Bank Accounts

Date Particulars RM Date Particular RM

Jan-01 Computer 2,500

CREDIT
 Recording Transaction Using T-Accounts

Example 2:
Jan 2 Bought office equipment worth RM1,000 on credit
from Jati Enterprise

Journal entries:
Jan 2 Dr Office Equipment Accounts RM1,000
Cr Bank Accounts RM1,000
 Office Equipment Accounts
Date Particulars RM Date Particular RM

Jan 02 Acc. Payabble - 1,000

Jati Enterprise
DEBIT

Accounts Payable - Jati Enterprise

Date Particulars RM Date Particular RM
Jan 02 Office Equipment 2,500
CREDIT
Trade discount & Cash discount
Trade Discount
● An allowance given by
the seller to the buyer to
encourage the buyer to
buy in bulk.
● Trade discount will be
deducted direct from the
total selling price and will
not be recorded in the
books of accounts.
Cash Discount
● An allowance given by
the seller to the buyer to
encourage the buyer to
make prompt payment.
● Two types of cash
discount , discount
allowed and discount
received.
● Both will be recorded in
statement of
comprehensive income.
 EXERCISES

Transaction 1 Transaction 2 Transaction 3 Transaction 4

The owner
brounght in cash Paid cash for Deposit cash into Purchase goods on
and and motor purchase of office bank account credit from G-Mart
vehicles into the equipment. Trading
business
 EXERCISES

Transaction 5 Transaction 6 Transaction 7 Transaction 8

Paid motor Nasir returned

Sold goods on expenses by cash
Cash Sales defective goods to
credit to Nasir
the business
 EXERCISES

Transaction 9 Transaction 10 Transaction 11 Transaction 8

Paid shop The owner The owner

Nasir settled his withdrew cash for
assistant’s salary withdrew goods for
account by cheque his personal use
by cheque his personal use
THANK
YOU…