TOPIC 4

PRINCIPLES OF DOUBLE ENTRY AND TRIAL

BALANCE
LEARNING OBJECTIVES

 At the end of the lessons, students should be able to:

 Explain what is meant by double entry rules
 Enter transactions to the ledger (T-account) using the double entry rules
 Understand how to balance off ledger accounts
 Draw up a trial balance (pre-adjusted only) from a given set of accounts.
 DOUBLE ENTRY RULES

 Every transaction affects two items, a bookkeeping entry will have to be made to show an increase or decrease of one
item and another entry to show the increase or decrease of another item.
 Each transaction will be recorded twice, namely debit and credit
 Rule of thumb for double entry rules is as follows:

A+D+E = L+C+R
DEBIT CREDIT DEBIT CREDIT
 Example
No Transaction Effect Accounts
Increase Decrease Debit Credit
1. Encik ahmad started business with cash Asset Cash Capital
RM50,000 and premises RM150,000 Asset Premises
Capital
2. Bought goods RM5,600 from Sura SB on Expenses Purchases Account
credit Liabilities Payable
3. Sold goods worth RM4,000 to Sri Dungun Asset Account Sales
on credit Revenue Receivable
4. Received Commissions RM1,100 by cheque Asset Bank Commission
Revenue received
5. Paid electricity RM200 by cheque to TNB Expenses Asset Electricity Bank
6. Withdrew cash RM200 for personal use. Drawings Asset Drawings Cash
Business Transactions

 Acquisition of assets and goods – buy assets or goods/inventories from other parties

Purchase of assets On credit Dr Assets (specific name of

asset)
Cr Accounts Payable (Specific
name of AP)
By cash/cheque Dr Asset (specific name of
assets)
Cr Cash/Bank
Purchase of inventory On credit Dr Purchases
Cr Account Payable (specific
name of AP)
By cash/cheque Dr Purchases
Cr Cash/Bank
Business Transactions

 Sales- Sell goods/inventories to other parties

Sales of inventory On credit Dr Account receivable (Specific

name of AR)
Cr Sales

By cash/cheque Dr Cash/Bank
Cr Sales
Business Transactions

 Return – Return of goods/inventory or assets to account payable due to damage or

obsolete

Return of goods/assets Inventory (Return Outwards)- Dr Account Payable (Specific

previously purchase on credit name of AP)
Cr Return Outwards/ Purchase
Return
Asset (previously purchased on Dr Account Payable (specific
credit) name of AP)
Cr Asset (specific name of
asset)
Business Transactions

 Return inwards (Sales Return)– Return of goods/inventory by customer or account

receivable due to damage

Return Inwards Inventory (previously sold on Dr Return Inwards

credit) Cr Account Receivable (specific
name of AR)
Business Transactions

 Capital – Owner brings in non-current asset or invested money to the business.

Capital Asset Dr Asset

Cr Capital

Money (Cash/Cheque) Dr cash/bank

Cr Capital
Business Transactions

 Drawings – withdraw of goods or cash by owner for personal use.

Drawings Money (by cash/cheque) Dr Drawings

Cr Cash/Bank

Inventory Dr Drawings
Cr Purchases
Business Transactions

 Other Income- Income derives from the business other than sales
 Example Commission received, rent received, discount received and interest received

Revenues Received by cash or cheque Dr Cash/bank

Cr Revenue (specific name of
revenues)
Business Transactions

 Expenses- incurred by the business in running the business operation.

 Example are salaries paid to employee, maintenance expenses, utilities expenses, rent
expenses and insurance expenses.

Expenses Paid by cash or cheque Dr expenses (specific name of

expenses)
Cr Cash/Bank
 Example: Acquisition of assets by cash or
cheque
 3 December 2019 – Purchased Furniture and Fittings by cheque RM 8,400 from KIZ Sdn Bhd
Double entry:

Dr Furniture & Fittings RM8,400

Cr Bank RM8,400
Furniture and Fitting

Date Particular RM Date Particular RM

3/12/2019 Bank 8,400

Bank

Date Particular RM
3/12/2019 Furniture and Fitting 8,400
 Example: Acquisition of assets on credit

 6 December 2019 – Purchased an Office equipment worth RM22,000 on credit from TIQ Enterprise
Double entry:

Dr Office Equipment RM22,000

Cr Account Payable- TIQ Enterprise RM22,000

Office Equipment

Date Particular RM Date Particular RM

6/12/2019 Account Payable - 22,000
TIQ Enterprise Account Payable- TIQ Enterprise

Date Particular RM
6/12/2019 Office Equipment 22,000
 Example: Cash purchase

 7 December 2019 – Purchased goods by cash RM8,000 from Qimily Trading

Double entry:

Dr Purchases RM8,000
Cr Cash RM8,000

Purchases

Date Particular RM Date Particular RM

7/12/2019 Cash 8,000
Cash

Date Particular RM
7/12/2019 Purchases 8,000
 Example : Credit purchase

 5 December 2019 – Purchased goods from Laufa Ent RM4,600 on credit.

Double entry:

Dr Purchases RM4,600
Cr Account Payable - Laufa Ent RM4,600

Purchases

Date Particular RM Date Particular RM

5/12/2019 Account Payable - 4,600
Laufa Ent
Account Payable - Laufa Ent

Date Particular RM
5/12/2019 Purchases 4,600
 Example : Credit sales

 19 December 2019 – PurSales of goods to Kamal RM800 on credit.

Double entry:

Dr Account Receivable - Kamal RM800

Cr Sales RM800

Account Receivable- Kamal

Date Particular RM Date Particular RM

19/12/2019 Sales 800

Sales

Date Particular RM
19/12/2019 Account Receivable- Kamal 800
 Example : Cash sales

 11 December 2019 – Sales of goods by cash to Warda RM2,000

Double entry:

Dr Cash RM2,000
Cr Sales RM2,000

Cash

Date Particular RM Date Particular RM

11/12/2019 Sales 2,000
Sales

Date Particular RM
11/12/2019 Cash 2,000
 Example : Return asset

 Return asset to account payable (asset previously acquired on credit)

 5 December 2019 – Return damage office equipment that has been previously purchased on credit to TIQ Ent RM1,500
Double entry:
Dr Account Payable –TIQ Ent RM1,500
Cr Office Equipment RM1,500
Account Payable –TIQ Ent

Date Particular RM Date Particular RM

5/12/2019 Office Equipment 1,500

Office Equipment

Date Particular RM
5/12/2019 Account Payable – TQ ent 1,500
 Example : Return outwards ( Purchase return)

 Return goods to account payable (goods previously purchased on credit)

 27 December 2019 – Return damage goods to Laufa Ent amounted RM600.
Double entry:
Dr Account Payable –Laufa Ent RM600
Cr Return Outwards RM600

Account Payable –Laufa Ent

Date Particular RM Date Particular RM

27/12/2019 Return Outwards 600

Return Outward

Date Particular RM
27/12/2019 Account Payable – Laufa ent 600
 Example : Return inwards (Sales Return)

 Return of inventory by customer or account receivable due to damage

 25 December 2019 – A customer, Kamal return damage goods to us worth RM150.
Double entry:
Dr Return inwards RM150
Cr Account receivable - Kamal RM150
Return Inwards

Date Particular RM Date Particular RM

25/12/2019 Account receivable- 150
Kamal Account Receivable - Kamal

Date Particular RM
25/12/2019 Return Inwards 150
 Example : Capital
Owner brings in Non-current asset to the
business
 4 December 2019 – Owner, Mr Tariq brought in personal motor vehicle worth RM55,000 for business use.
Double entry:
Dr Motor Vehicle RM55,000
Cr Capital RM55,000

Motor Vehicle

Date Particular RM Date Particular RM

4/12/2019 Capital 55,000

Capital

Date Particular RM
4/12/2019 Motor Vehicle 55,000
 Example : Capital
Owner invested money to the business
 1 December 2019 –Started business with RM80,000 cash in the bank and RM50,000 cash in hand.
Double entry: Dr Bank RM80,000
Cr Capital RM80,000
Dr Cash RM50,000
Cr Capital RM50,000
Bank

Date Particular RM Date Particular RM

1/12/2019 Capital 80,000

Cash

Date Particular RM Date Particular RM

1/12/2019 Capital 50,000
 Example : Capital
Owner invested money to the business (Cont.)
 1 December 2019 –Started business with RM80,000 cash in the bank and RM50,000 cash in hand.
Double entry: Dr Bank RM80,000
Cr Capital RM80,000
Dr Cash RM50,000
Cr Capital RM50,000

Capital

Date Particular RM Date Particular RM

1/12/2019 Bank 80,000
1/12/2019 Cash 50,000
 Example :Drawings
Owner withdraws cash from the business for
personal use.
 11 December 2019 – Owner withdrew cash RM5,000 from the business for personal use.
Double entry: Dr Drawings RM5,000
Cr Cash RM5,000

Drawings

Date Particular RM Date Particular RM

11/12/2019 Cash 5,000

Cash

Date Particular RM Date Particular RM

11/12/2019 Drawings 5,000
 Example :Drawings
Owner withdraws goods for personal use.
 17 December 2019 – Owner withdrew goods worth RM500 from the business for personal use.
Double entry: Dr Drawings RM500
Cr Purchases RM500

Drawings

Date Particular RM Date Particular RM

17/12/2019 Purchases 500
Purchases

Date Particular RM Date Particular RM

17/12/2019 Drawings 500
 Example :Other Income
Received other income by cash
 23 December 2019 – Received commission by cash RM700 from Noah Trading
Double entry: Dr Cash RM700
Cr Commission Received RM700

Cash

Date Particular RM Date Particular RM

23/12/2019 Commission received 700
Commission received

Date Particular RM Date Particular RM

23/12/2019 Cash 700
 Example :Other Income
Received other income by cheque
 12 December 2019 – Received rent by cheque RM10,000 from Dynamic Sdn Bhd.
Double entry: Dr Bank RM10,000
Cr Rent Received RM10,000

Bank

Date Particular RM Date Particular RM

12/12/2019 Rent received 10,000
Rent received

Date Particular RM Date Particular RM

12/12/2019 Bank 10,000
 Example : Expenses
Paid expenses by cash
 28 December 2019 – Paid electricity expenses RM600 by cash
Double entry: Dr Electricity expenses RM600
Cr Cash RM600

Electricity expenses

Date Particular RM Date Particular RM

28/12/2019 Cash 600
Cash

Date Particular RM Date Particular RM

28/12/2019 Electricity expenses 600
 Example : Expenses
Paid expenses by cheque
 25 December 2019 – Paid salaries to the employee RM2,200 by cheque
Double entry: Dr Salary expenses RM2,200
Cr Bank RM2,200

Salary expenses

Date Particular RM Date Particular RM

25/12/2019 Bank 2,200
Bank

Date Particular RM Date Particular RM

25/12/2019 Salaries expenses 2,200
Thank you