ACC106

Chapter 3

PRINCIPLES OF DOUBLE ENTRY

( THE RECORDING PROCESS)

LEARNING OBJECTIVES
3.1 Introduction
 DOUBLE ENTRY PRINCIPLES
Classification DEBIT CREDIT
Assets increase in Assets decrease in Assets

Liability decrease in Liabilities increase in Liabilities

Capital/ Owner’s equity decrease in Owner’s Equity increase in Owner’s Equity

Revenue decrease in Revenue increase in Revenue

Expenses increase in Expenses decrease in Expenses

DOUBLE ENTRY PRINCIPLES FOR ASSETS
 The double entry principle for assets is:
Assets a/c
Debit Credit
To record increase in Assets To record decrease in Assets

i.e Jan 1 Bought equipment paying by cheque RM 1,000

Dr. Equipment a/c RM 1,000
Cr. Bank a/c RM 1,000
Equipment a/c
Jan 1 Bank 1,000
Bank a/c
Jan 1 Equipment 1,000
 DOUBLE ENTRY PRINCIPLES FOR
LIABILITIES
 The double entry principle for liabilities is:
Liabilities a/c
Debit Credit
To record decrease in Liabilities To record increase in Liabilities

i.e Jan 2 Bought equipment on credit from Streamyx Sdn. Bhd. RM 2,000
Dr. Equipment a/c RM 2,000
Cr. Creditor a/c – Streamyx Sdn. Bhd. RM 2,000
Equipment a/c
Jan 2 Creditor 2,000
Creditor a/c – Streamyx Sdn. Bhd a/c
Jan 2 Equipment 2,000
 DOUBLE ENTRY PRINCIPLES FOR
OWNER’S EQUITY
 The double entry principle for Owner’s Equity is:
Owner’s Equity a/c
Debit Credit
To record decrease in Owner’s Equity To record increase in Owner’s Equity

i.e Jan 1 The owner started business with RM 10,000 cash in bank
Dr. Bank a/c RM 10,000
Cr. Capital a/c. RM 10,000
Bank a/c
Jan 1 Capital 10,000
Capital a/c
Jan 1 Bank 10,000
 DOUBLE ENTRY PRINCIPLES FOR
EXPENSES
I) The double entry principle for Expenses is:
Expenses a/c
Debit Credit
To record increase in Expenses To record decrease in Expenses

i.e Jan 6 Paid salary by cheque RM 300

Dr. Salary a/c RM 300
Cr. Bank a/c. RM 300
Salary a/c
Jan 6 Bank 300
Bank a/c
Jan 6 Salary 300
 DOUBLE ENTRY PRINCIPLES FOR
REVENUE
II) The double entry principle for Revenue is:
Revenue a/c
Debit Credit
To record decrease in Revenue To record increase in Revenue

i.e Jan 8 Received cash for house rental RM 450

Dr. Cash a/c RM 450
Cr. Rent Received a/c. RM 450
Cash a/c
Jan 8 Rent received 450
Rent Received a/c
Jan 8 Cash 450
 DOUBLE ENTRY PRINCIPLES FOR STOCK
 The double entry are as follows:

Transactions Effects Double entry

Purchased of goods Purchase Expense Increase Debit Purchases a/c

Sales of goods Sales Revenue Increase Credit Sales a/c

Purchases Returns Purchase Expense decrease Credit Purchase Returns a/c

Sales Returns Sales Revenue decrease Debit Sales Return a/c


Transactions
Purchased goods:
Purchased goods on credit
from Siti Ent
Sales of goods:
Credit Sales to Zila
Purchases Returns:
Returned goods to Siti
Enterprise
Sales Returns:
Zila returned defective goods
Example
Effects
Purchase Expense Increase
Liability creditor increase
Sales Revenue Increase
Asset debtor increase
Liability creditor decrease
Purchase Expense decrease
Sales Revenue decrease
Asset debtor decrease
Double entry
DR Purchases a/c
CR Creditor (Siti) a/c
DR Debtor (Zila) a/c
CR Sales a/c
DR Creditor (Siti) a/c
CR Purchase Returns a/c
DR Sales Return a/c
CR Debtor (Zila) a/c
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)
Purchases a/c
Jan 6 Creditor - Siti Enterprise 2, 000
Creditor - Siti Enterprise a/c
Jan 6 Purchases 2,000
i.e 2. Jan 7 Returned goods to Siti Enterprise RM 100
Journal entries
Dr. Creditor - Siti Enterprise RM 100
Cr. Purchases Return a/c RM 100
Creditor - Siti Enterprise a/c
Jan 7 Purchases Return 100 Jan 6 Purchases 2,000
Purchases Return a/c
Jan 7 Creditor 100
DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)
i.e 3. Jan 8 Credit Sales to Zila RM 400
Journal entries
Dr. Debtor – Zila a/c RM 400
Cr. Sales a/c RM 400

Debtor – Zila a/c

Jan 8 Sales 400

Sales a/c
Jan 8 Debtor - Zila 400
 DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)
i.e 4. Jan 15 Zila returned defective goods worth RM 40
Journal entries
Dr. Return Inwards a/c RM 40
Cr. Debtor – Zila a/c RM 40

Return Inwards a/c

Jan 15 Debtor – Zila 40

Debtor – Zila a/c

Jan 8 Sales 400 Jan 15 Return Inwards 40
 DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)
i.e 5. Jan 17 Bought goods from Jenny paying by cheque RM 400
Journal entries
Dr. Purchases a/c RM 400
Cr. Bank a/c RM 400

Purchases a/c
Jan 17 Bank 400

Bank a/c
Jan 17 Purchases 400
 DOUBLE ENTRY PRINCIPLES FOR STOCK
(cont’d)
i.e 6. Jan 19 Cash sales to Ali Baba RM 240
Journal entries
Dr. Cash a/c RM 240
Cr. Sales a/c RM 240

Cash a/c
Jan 19 Sales 240

Sales a/c
Jan 19 Cash 240
 TRANSPORTATION COST FOR
PURCHASE & SALES OF GOODS
Transportation Costs DOUBLE ENTRY ACCOUNT TO RECORD
Freight or carriage DR Carriage outwards a/c Trading a/c
outwards: CR Cash/ Bank a/c (as part of the cost of goods
The cost of transport paid to purchased)
send the goods sold to the
buyer’s premises

Freight or carriage D R Carriage inwards a/c Profit & Loss a/c

inwards: C R Cash/ Bank a/c (expenses)
The cost of transport paid to
bring in the goods bought to
the business premises
DOUBLE ENTRY PRINCIPLES FOR
TRADE DISCOUNT
DOUBLE ENTRY PRINCIPLES FOR TRADE
DISCOUNT (cont’d)
Journal entries
Dr. Purchases a/c RM 1,900
Cr. Creditor - Teepah Trading RM 1,900
Purchases a/c
Jan 25 Creditor – Teepah Trading 1,900

Creditor - Teepah Trading a/c

Jan 25 Purchases 1,900
DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT
 DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT
Journal entry 1 Journal entry 2
Discount Received DR Creditor a/c DR Creditor a/c
CR Discount Receive a/c CR bank a/c

Discount Allowed DR Discount Allowed a/c DR Bank a/c

CR Debtor a/c CR Debtor
 DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT
Example: Journal entry 1 Journal entry 2
Discount Received: DR Creditor (Jenny) a/c DR Creditor (Jenny) a/c
Paid supplier - Jenny RM38 RM1862
Trading RM1900 by
CR Discount Receive a/c CR Bank a/c
cheque after deducting
RM38 RM1862
cash discount 2%

Discount Allowed DR Discount Allowed a/c DR Bank a/c

Ahmad (debtor) paid RM60 RM2940
RM3,000 by cheque after CR Debtor a/c CR Debtor a/c
deducting cash discount RM60 RM2940
of 2%
 DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT (cont’d)
Creditor – Jenny Trading
Jan31 Discount Received 38 Jan 18 Purchases 1,900
Jan 31 Bank 1,862
1,900 1,900
Discount Received a/c
Jan 31 Jenny Trading 38
Bank a/c
Jan 31 Jenny Trading 1,862
 DOUBLE ENTRY PRINCIPLES FOR
CASH DISCOUNT (cont’d)
Debtor - Ahmad
Jan 19 Sales 3,000 Jan 31 Discount allowed 60
Jan 31 Bank 2,940
3,000 3,000
Discount Allowed a/c
Jan 31 Debtor – Ahmad 60
Bank a/c
Jan 31 Debtor – Ahmad 2,940