BHT1333 HOSPITALITY ACCOUNTING 1 DEGREE (HOSPITALITY)

Lecture 2: Double Entry Bookkeeping Learning objectives:

Important Textbook Reading:
 Chapters 1, 2 & 4: Frank Wood & Alan Sangster “Business Accounting 1”
After you have studied this chapter, you should be able to:
 Distinguish between debit and credit items
 Understand the meaning of ‘double entry’
 Explain the relationship between accounting and bookeeping
 Explain the Accounting Cycle
 Prepare ledger accounts and journal entries
 List the main users of accounting information
 List the types of business activities and modes of business ownership

THE ‘DOUBLE ENTRY’ SYSTEM

Debit Credit

Liabilities

Assets Revenue

Expenses Equity

Assets = Liabilities + Equity

Profit = Revenue - Expenses

Prepared by: NG KEAN WAI

BHT1333 HOSPITALITY ACCOUNTING 2 DEGREE (HOSPITALITY)

1. Debit items Illustration 1:

Debit items, denoted as “Dr”, represent the resources that are needed Identify whether “Dr” or “Cr” for the following items:
in undertaking the business activities:
i) Assets Office equipment Dr
ii) Expenses Motor vehicles Dr
iii) Losses (i.e. expenses exceeding revenue) Discount received Cr
Interest received Cr
2. Credit items Loan Cr
Amount owing to suppliers Cr
Credit items, denoted as “Cr”, represent the sources that provide or Capital Cr
supply for the resources that are needed in undertaking the business Office rental Dr
activities: Telephone Dr
i) Liabilities Salaries Dr
ii) Equity Sales Cr
iii) Revenue Purchases Dr
iv) Profit (i.e. revenue exceeding expenses) Amount owing by customers Dr
Profit Cr
Loss Dr
Cash Dr
Bank Dr

Prepared by: NG KEAN WAI

BHT1333 HOSPITALITY ACCOUNTING 3 DEGREE (HOSPITALITY)

3. Double entry

We have seen that every business transaction has two effects in the
accounting equation (dual effect). ‘Double entry’ is the accounting
system of systematically recording both effects in every business Assets = Liabilities + Equity
transaction. Increase  Dr Increase  Cr Increase  Cr
Decrease  Cr Decrease  Dr Decrease  Dr
The two effects cause a debit entry and a credit entry, arising from a
combination of the following changes:

Changes to debit items will be either:

i) an increase – recorded as a debit entry
ii) a decrease – recorded as a credit entry
Profit = Revenue - Expenses
Increase  Cr Increase  Cr Increase  Dr
Changes to credit items will be either: Decrease  Dr Decrease  Dr Decrease  Cr
i) an increase – recorded as a credit entry
ii) a decrease – recorded as a debit entry

For every change on the debit side, there is an exactly equal and
opposite change on the credit side. The debit side must be equal to the
credit side.

Prepared by: NG KEAN WAI

BHT1333 HOSPITALITY ACCOUNTING 4 DEGREE (HOSPITALITY)

Illustration 2:
Double entry effect of transaction:
Identify the effect of the following transactions on the elements of the Assets/ Liabilities/ Amt Amt
Increase / Title of ledger
Accounting Equation or Profit Determination Equation. Equity/ Revenue/ (RM) (RM)
Decrease account
Expenses DR CR
1. Encik Othman starts business with RM30,000 cash. 1 Dr Assets Increase 30,000 Cash
2. Loan from Public Bank Bhd. RM20,000 entered into bank account. Cr Equity Increase 30,000 Capital
3. Deposit cash of RM20,000 into the bank account. 2 Dr Assets Increase 20,000 Bank
4. Paid a cheque amounting RM8,000 for fixtures and fittings. Cr Liabilities Increase 20,000 Loan
5. Bought furniture from Fanzy Furniture RM7,000 on credit 30 days. 3 Dr Assets Increase 20,000 Bank
6. Purchased inventories from North Pole RM10,000 on credit 30 days. Cr Assets Decrease 20,000 Cash
7. Sales on cash term RM8,000 4 Dr Assets Increase 8,000 Fixture & fittings
8. Othman’s father gave him a gift of RM9,000 cash as additional capital Cr Assets Decrease 8,000 Bank
for the business. 5 Dr Assets Increase 7,000 Furniture
9. Paid cash RM2,000 to settle an amount owing to payables. Cr Liabilities Increase 7,000 Payables
10. Sales RM9,000 on credit term. 6 Dr Expenses Increase 10,000 Purchases
11. Encik Othman brought a computer (valued at RM4,000) from his home Cr Liabilities Increase 10,000 Payables
for use in the business. 7 Dr Assets Increase 8,000 Cash
12. Received a cheque RM9,000 as settlement of amount owing by Cr Revenue Increase 8,000 Sales
receivables. 8 Dr Assets Increase 9,000 Cash
13. Encik Othman issued a cheque amount RM1,000 to pay for his son’s Cr Equity Increase 9,000 Capital
tuition fee at TAR College. 9 Dr Liabilities Decrease 2,000 Payables
14. Paid a cheque RM9,000 to settle part of the loan from Public Bank Bhd. Cr Assets Decrease 2,000 Cash
10 Dr Assets Increase 9,000 Receivables
Cr Revenue Increase 9,000 Sales
11 Dr Assets Increase 4,000 Office Equipment
Cr Equity Increase 4,000 Capital
12 Dr Assets Increase 9,000 Bank
Cr Assets Decrease 9,000 Receivables
13 Dr Equity Decrease 1,000 Drawings
Cr Assets Decrease 1,000 Bank
14 Dr Liabilities Decrease 9,000 Loan
Cr Assets Decrease 9,000 Bank

Prepared by: NG KEAN WAI

BHT1333 HOSPITALITY ACCOUNTING 5 DEGREE (HOSPITALITY)

4. All the accounts in the 3 Ledgers are in the ‘T’ account format: When posting the total amounts from the books of prime entry to the
ledger accounts using double entry system, it is necessary to:
Title of account i) Identify the two effects of the transaction (debit and credit).
RM RM ii) Decide which accounts to be posted to.
iii) Enter the opposite account as particulars
iv) Enter the amount of change being effected by the transaction

Illustration of double entry system of posting to the ledger accounts:

The rules of the double entry system are illustrated below:
Title of account <A>
Debit Title of account <Assets> Credit
Year RM RM
RM RM
Date Title of account <B> Amount
Increase in assets Decrease in assets of change

Title of account <B>

Debit Title of account <Liabilities> Credit RM Year RM
RM RM Date Title of account <A> Amount
Decrease in liabilities Increase in liabilities of change

Example:
Debit Title of account <Equity> Credit On 1 May 2010, Mr. Ong brought in his personal car (valued
RM RM RM80,000) for use in the business.
Decrease in equity Increase in equity
i) Identify the two effects of the transaction:
Increase in asset (Dr) RM80,000; Increase in equity (Cr) RM80,000
Debit Title of account <Revenue> Credit ii) Decide which accounts to be posted to:
RM RM Asset – Motor vehicles account; Equity – Capital account
Decrease in revenue Increase in revenue
Motor Vehicles account
2010 RM RM
Debit Title of account <Expenses> Credit May 1 Capital 80,000
RM RM
Increase in expenses Decrease in expenses
Capital account
RM 2010 RM
May 1 Motor Vehicles 80,000

Prepared by: NG KEAN WAI