Double entry system for Income & Expenses

A. Income ---- Monetary value of goods / services that have been supplied
to customers (Sales)

---- Also include interest received, rent received, commission

received.

B. Expenses ---- Cost value of assets & services that have been used up to
Obtain those income (Cost of goods sold)

---- Also include salaries & wages for employees, telephone

bills,
Rent payable, insurance, postage & stationery, lighting and
heating, etc

C. Profit from Trading

Income – Expenses = Profit / Loss

When a business makes profit, the profit belongs to the owner, so it should be
added to the capital account.

D. Summary

1) Income ------ Profit ------ Capital (Credit entry)

2) Expenses ----- Profit ------ Capital (Debit entry)

E. Drawings

When owners take out cash / other assets of the business for their use.

Not an expense of the business.

Drawings will reduce capital (Debit entry)

An increase in ..... Debit entry Credit entry

Asset √
Expense √
Drawings √

Liabilities √
Capital √
Income √
Exercises:
(a) Write up the following transactions in ledger accounts.
(b) Balance off the bank account.

March
1. Set up business by putting $150,000 in to the bank.
2. Purchase property costing 140,000. Pay by cheque.
5. Purchase goods costing $5,000 on credit from D Shine Co. and pay carriage
inwards of $50 by cheque.
7. Sell goods for $7,000 and bank-in the money immediately.
10. Purchase goods costing $8,000, pay by cheque.
15. Pay a sundry expense of $100 by cheque.
20. Sell goods for $15,000 on credit to Disa Ltd.
27. Pay wages of $2,000 to an employee by cheque.
30. Pay insurance of $1,000 by cheque.
31. Sell goods for $2,200to Mr. Soon. Received the money by cheque.

Capital expenditure & Revenue expenditure

1. Capital expenditure
 Expenditure on non-current assets that will be used for a long period
of time in the business.

 Include: i. Purchase price

ii. Carriage inwards
iii. Installation cost
iv. Improvement / upgrading to existing asset

 Treat as cost of non-current assets & show in Statement of financial

position.

2. Revenue expenditure
 Amount incur on the day to day running of the business.

 Amount incur on the maintenance of non-current assets.

 Treat as expenses and show in Income Statement.