DOUBLE ENTRY BOOK

KEEPING AND BOOKS OF

ORIGINAL ENTRY

Chapter Two

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 Double Entries

• Each transaction that a business enters into

affects the financial statement in two ways.
• For eg:
• A business buys a non-current asset for cash.
• Increase – Non Current Assets
• Decrease – Cash

Capital = Assets - Liabilities

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 Ledger accounts, debits and credits

• Transactions are recorded in a relevant ledger

accounts. There is a ledger account for each
asset, liability, revenue and expense item.
• Each account has 2 sides - debit and credit

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 Format of Accounts

Accounts have the following layout:

Account Dr. Title of Account
Format Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
RM RM

Columnar Title of Account

Format Date Particulars Folio Debit Credit Amount
RM

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 T Account

A/c title
‘debit’ ‘credit’

• Identify entries:
Debit a/c “x” with RMXXX
Credit a/c “y” with RMXXX

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 5. In Summary
summary

Assets = Capital + Liabilities

Asset Capital Liabilities
Increase
Debit Credit Credit

Asset Capital Liabilities

Decrease
Credit Debit Debit

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 Recording cash transactions

Debit – Funds received

Credit – Funds paid out
Example:
(i) Kamran pays RM80 for rent by cheque
(ii) Kamran sells goods for RM230 cash which
he banks.
(iii) He then takes RM70 out of business for his
personal living expenses
(iv) Kamran sells more goods for cash,
receiving RM3,400
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 Recording credit and cash/cheque
sales and purchases
Purchase of inventory on credit
On 1 August 20X8, goods costing RM165 are bought
on credit from D. Henry.

↑ Inventory: Dr. Purchases A/c ↑ Creditor: Cr. D. Henry A/c

(A/c payable)

Purchases D. Henry
20X8 RM 20X8 RM
Aug 1 D.Henry 165 Aug 1 Purchases 165

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 b. Purchase of inventory by cheque

On 2 August 20X8, goods costing RM22 are

bought, cheque being paid immediately.

↑ Inventory: Dr. Purchases A/c ↓ Bank: Cr. Bank A/c

Purchases Bank
20X8 RM 20X8 RM
Aug 2 Bank 22 Aug 2 Purchases 22

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 c. Sales of inventory on credit

On 3 August 20X8, goods were sold on credit

for RM250 to J. Lee.

↓ Inventory: Cr. Sales A/c ↑ Debtor: Dr. J. Lee A/c

(A/c receivable)

Sales J. Lee
20X8 RM 20X8 RM
Aug 3 J. Lee 250 Aug 3 Sales 250

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 d. Sales of inventory for cash

On 4 August 20X8, goods are sold RM55,

cash being received immediately upon sale.

↓ Inventory: Cr. Sales A/c ↑ Cash: Dr. Cash A/c

Sales Cash
20X8 RM 20X8 RM
Aug 4 Cash 55 Aug 4 Sales 55

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 e. Returns inwards
On 5 August 20X8, goods which had been previously
sold to F. Lowe for RM29 are returned to the
business. This could be for various reasons such as:
a) Wrong size/ wrong colour/ wrong model
b) Goods may have been damaged in transit
c) Poor quality
↑ Inventory: Dr. Returns ↓ Debtor: Cr. F. Lowe A/c
Inwards A/c (A/c receivable)

Returns Inwards F. Lowe

20X8 RM 20X8 RM
Aug 5 F. Lowe 29 Aug 5 Returns
Inwards 29

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 f. Returns outwards

On 6 August 20X8, goods previously bought for

RM96 are returned by the business to K. Howe.

↓ Inventory: Cr. Returns ↓ Creditor: Dr. K. Howe A/c

Outwards A/c (A/c payable)

Returns Outwards K. Howe

20X8 RM 20X8 RM
Aug 6 K. Howe 96 Aug 6 Returns
Outwards 96

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 Accounting for Discounts

• Discounts may be
given in the case of
credit transactions for
prompt payment.
• A business may give its
customer a discount –
discount allowed
• A business may
receive a discount from
a supplier - discount
received

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 Balancing off Accounts

Balance off the following account

Cash
Capital 10,000 Purchases 200
Sales 250 Rent 150
Electricity 75
Bal c/d 9,725
Balance brought down 10,250 Balance carried down 10,250
Oct 1 Bal b/d 9,725
The balance above the totals is described as balance carried down (Bal c/d)

The balance below the total is described as balance brought down (Bal b/d)

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 Trial Balance

A ___________
trial balance is a list of debit and credit
balances extracted from the accounts at a particular
date.

Uses of Trial Balance:

a)To prepare the final accounts, i.e.
_______________________________.
Income Statement and Balance Sheet

b) To check the arithmetic accuracy of the entries

of the ledger, i.e.Total
____________________________
debit balances = Total credit balance

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 Debit and Credit Balances

Accounts with debit balance

•Assets
•Expenses
•Drawings Accounts with credit balance
•Liabilities
•Revenues
•Capital

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 1. Books of Original Entry
(Books of Prime Entry)

-These are the books where the FIRST ENTRY

of business transaction is made.
-Transactions are classified and listed in the
appropriate books of original entry.
-We enter the transactions of these books
giving the following details:
•Date: the transactions should be shown in date
order
•Details/particulars column completed
•Folio column for cross-referencing purposes
•Money column completed
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 Types of books of original entry

Books of Prime Entry Transaction type

Sales Journal Credit sales

Purchases Journal Credit purchases

Returns Inwards Journal Returns of goods bought on credit

Cash Book All receipts and payments of cash

and cheque transactions
General Journal All transactions not recorded
elsewhere

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 2. Sources of Information

• All entries into these books of original entry must

be supported by one of the following document:
Invoice Sent by the seller to the buyer to
a) ________:
inform the latter of the amount due on goods or
services supplied.

You Sold goods

Custom
on credit
er

Sent sales invoiceTo customer, the sales

invoice was regarded
as purchases invoice
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 2. Sources of Information

b) Credit note Sent by the seller to the buyer when

____________:
goods have been overcharged or when the latter
returns goods.
c) Debit note Sent by the seller to the buyer as an
__________:
additional invoice when the latter has been
undercharged.
Cheques and cheque counterfoils
d) _____________________________ : Information such
as cheque number, name of paying bank and amount
received are noted before the cheque is banked in.
Likewise, information such as cheque number,
payee’s name and amount paid are obtained from
counterfoils of cheques that have been paid out.

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 2. Sources of Information

e) ________:
Receipt Acknowledgement of payment made.
Till slips Cash receipt that is issued
f) _________:
whenever cash is paid into a cash register.
Petty cash vouchers Document signed by an
g) ___________________:
officer authorising payment from the company’s
petty cash. This is used as evidence of payment
whenever it is not possible to obtain a receipt.

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 The Journal

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 Uses of the General Journal

i. non-current assets
The purchase and sale of __________________
on credit .
__________
i. Opening entries – these are the entries needed
to open a new set of books.
ii. Transactions not record in other journals, e.g.
correction of errors, adjustments, writing off
bad debts and other entries.

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 Example

i) Purchase of Non-current Assets

Motor vehicle is bought from Global Motors on credit
for RM4,500 on 20 June 2008.

Step 1: Write up the transactions into the General Journal as follows:

Journal Page 11
Date Particulars Folio Debit Credit
2008 RM RM
Jun 20 Motor Vehicle GL 1 4,500
Global Motors PL 55 4,500
(Purchase of motor vehicle Narrative
on credit)
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 (i) Purchase of Non-current Assets
Journal Page 11
Date Particulars Folio Debit Credit
2008 RM RM
June 20 Motor Vehicle GL 1 4,500
Global Motors PL 55 4,500
(Purchase of motor vehicle on credit)

Step 2: Posting from Journal to the Ledger.

GENERAL LEDGER Motor Vehicle Page 1
2008 RM
June 20 Global Motors J11 4,500
PURCHASES LEDGER Global Motors Page 55
2008 RM

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June 20 MotorCopyright
Vehicle J11 4,500
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 ii) Opening Entries
Alex who has been doing business for some time without keeping proper
records, decides to employ a qualified book-keeper to keep his books for
him. On 1 Jan, he establishes that he has the following:

His capital will consists

of:
Assets Liabilities Assets – Liabilities
= RM23,800 – RM4,800
= RM19,000

Premises 20,000
Motor Van 3,000
A/c receivables Bank Overdraft 4,000
– Johnny 100 A/c payables – Miki 500
- Ramesh 200 - Hana 300
Inventory 200 4,800
Cash 300
Total 23,800

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 ii) Opening Entries
Step 1: To begin writing the books, these items must be
entered into the Journal.
Journal Page 5
Date Particulars Folio Debit Credit
RM RM
Jan 1 Premises GL 3
20,000
Motor Van GL 4
3,000
A/c receivables – John ny SL 3
100
Bank – Ramesh CB 52
SL 200 4,000
Inventory A/c payables – Miki PL
GL 10
7 500
200 – Hana PL 16 300
Cash Capital CB
GL 220 19,000
300
(Assets and liabilities at this date 23,800 23,800
entered to open the books)
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 ii) Opening Entries
Step 2: Posting the Journal entries to the Ledger or cash
Book to open the accounts.
•
GENERAL LEDGER
Premises Page 1
RM
Jan 1 Bal b/d J5 20,000
Motor Van Page
4
RM
Jan 1 Bal b/d J5 3,000
Inventory Page 7
RM
Jan 1 Bal b/d J5 200
Capital Page 20
RM
Jan 1 Bal b/d J5 19,000
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 ii) Opening Entries
SALES LEDGER Johnny Page
3
RM
Jan 1 Bal b/d J5 100
Raju Page 5
RM
Jan 1 Bal b/d J5 200

URCHASES LEDGER Miki Page 10

RM
Jan 1 Bal b/d J5 500
Hana Page 16
RM
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Copyright © 2006, Companies, Inc.
 ii) Opening Entries
Cash Book Page 2
Date Particulars Folio Cash Bank Date Particulars Folio Cash Bank
RM RM RM RM
Jan 1 Bal b/d J5 300 Jan 1 Bal b/d J5 4,000

$$
$
$ $
$

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 iii) Transactions Not Recorded in Other Journal
a) Inventory worth RM50 is taken out as samples for an
advertising campaign on Jan 1:

Journal Page 5
Date Particulars Folio Debit Credit
RM RM
Jan 1 Advertising GL 5 50
Purchases GL 9 50
(withdrawal from inventory as
samples for advertising campaign)

GENERAL LEDGER Advertising Page

5
RM
Jan 1 Purchases J5 50
Purchases Page
9
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 iii) Transactions Not Recorded in Other Journal
b) A debt of RM78 owed by Aman is written off as a bad debt on
31 Aug 2008.

Journal Page 2
Date Particulars Folio Debit Credit
2008 RM RM
Aug 31 Bad debts GL 6 78
Amanda SL 7 78
(Debt written off as bad)

GENERAL LEDGER Bad Debts Page 6

2008 RM
Aug 31 Aman J2 78

SALES LEDGER Aman Page 7

2008
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 End of Chapter 3

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