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LEARNING OUTCOME
At the end of the lesson, students should be
able to:
1.Describe and apply the double entry rules
2.Record business transactions into T
accounts
3.Balance the ledger T accounts
4.Prepare a trial balance from a set of
accounts
 ACCRUAL CONCEPT – DUALITY EFFECT
Every business transaction has an effect on the balance
sheet component – asset, liabilities, owner’s equity.

Each transaction has a dual effect, and this effect is

recorded in the accounts in the accounting system

Thus, a change in any balance sheet component is followed

by another change which is equal but of opposite effect to
another component.
ACCOUNT
 An account is a chronological record of the
increases and decreases related to an item,
whether the item is an asset, a liability, an
owner’s equity, an expense or a revenue
 An account is found in the ledgers.
 An account is called a T account since it is
shaped like a T.

Account Name
Debit side Credit side
 THE T ACCOUNT
Account Name
Date Particulars Folio Amount Date Particulars Folio Amount

 Date column – to record date of transaction

 Particulars column – to record the related account
 Folio column – for cross referencing
 Amount column – to record amount of money
 RULES OF DOUBLE ENTRY
Asset accounts are
 increased by debiting and decreased by crediting the
relevant asset T account.
Liability and owner’s equity accounts are
 increased by crediting and decreased by debiting the
relevant liability and capital T accounts.
Expense accounts are
 increased by debiting and decreased by crediting the
relevant expense T account.
Revenue accounts are
 increased by crediting and decreased by debiting the
relevant revenue T accounts.
RULES OF DOUBLE ENTRY – A SUMMARY

Account Name
Increase in assets Decrease in assets
Increase in expenses Decrease in expenses
Increase in drawings Decrease in drawings
Decrease in liabilities Increase in equity
Decrease in equity Increase in liabilities
Decrease in revenues Increase in revenues
 EXAMPLE OF TRANSACTION INVOLVING
ASSET
On 1st January 2012, Ahmad Enterprise bought a furniture with
cash amounting to RM 200.

Therefore:
Dr Furniture a/c RM 200
Cr Cash a/c RM 200

Furniture a/c Cash a/c

2012 2012
Jan 1 Cash 200 Jan 1 Furniture 200
 EXAMPLE OF TRANSACTION INVOLVING
LIABILITIES
On 2nd January 2012, Ahmad Enterprise receive a cheque for a loan
from ABC Bank amounting RM 20, 000.

Therefore:
Dr Bank a/c RM 20000
Cr Loan- ABC Bank a/c RM 20000

Bank a/c Loan- ABC Bank a/c

2012, Jan 2 2012, Jan 2
Loan-ABC Bank 20000 Bank 20000
 EXAMPLE OF TRANSACTION INVOLVING
OWNER’S EQUITY
1) Introduction of capital
On 3rd Jan 2012, Ahmad brought in his own cash into the
business amounting RM 1000.
Therefore,
Dr Cash a/c RM 1000
Cr Capital a/c RM 1000
2) Drawings by owner
On 4th Jan 2012. Ahmad took cash from business for his
family use RM 100.
Therefore,
Dr Drawings a/c RM 100
Cr Cash a/c RM 100
 RULES OF DOUBLE ENTRY – A
SUMMARY
Account Type To Record Entry in Account
Asset An increase Debit
A Decrease Credit
Expense An increase Debit
A Decrease Credit
Capital An increase Credit
A Decrease Debit
Drawings An increase Debit
A Decrease Credit
Liability An increase Credit
A Decrease Debit
Revenue An increase Credit
A Decrease Debit
THE EFFECT OF TRANSACTIONS
ON THE BASIC ACCOUNTING
EQUATION
1) Introduction of capital
On 1st Jan 2012, Amin started the business and deposited cash in
bank, RM 50000.
SOLUTION:
a) Shows the account, effect and action
ACCOUNT EFFECT ACTION
INVOLVED
Bank a/c Asset: Increase Dr Bank a/c
Capital a/c Owner’s equity: Increase Cr Capital a/c

b) Shows the journal entries

DATE ACCOUNTS DEBIT CREDIT

2012, Bank a/c 50000

Jan 1 Capital a/c 50000
(the introduction of capital)
2) Purchase of asset by cheque
On 1st Feb 2012, Amin purchase a furniture and issued a cheque
of RM 2600 for payment.
SOLUTION:
a) Shows the account, effect and action
ACCOUNT EFFECT ACTION
INVOLVED
Furniture a/c Asset: Increase Dr Furniture a/c
Bank a/c Asset: Decrease Cr Bank a/c

b) Shows the journal entries

DATE ACCOUNTS DEBIT CREDI
T
2012, Furniture a/c 2600
Feb 1 Bank a/c 2600
(purchase furniture with cheque)
3) Purchase of asset and incurring liability
On 12 June 2012, Amin purchase fixture and fittings from Faiz,
RM 1000 and promised to pay next week.
SOLUTION:
a) Shows the account, effect and action
ACCOUNT EFFECT ACTION
INVOLVED
F&F a/c Asset: Increase Dr F&F a/c
Faiz a/c Liability: Increase Cr Faiz a/c

b) Shows the journal entries

DATE ACCOUNTS DEBIT CREDIT

2012, Fixtures & Fittings a/c 1000

June 12 Faiz a/c 1000
(purchase of F&F on credit )
4) Sale on credit
On 3rd July 2012, Amin sold furniture to Ali on credit, RM 300.
SOLUTION:
a) Shows the account, effect and action
ACCOUNT EFFECT ACTION
INVOLVED
Ali - AR a/c Asset: Increase Dr Ali a/c
Sales a/c Revenue: Increase Cr Sales a/c
b) Shows the journal entries
DATE ACCOUNTS DEBIT CREDIT

2012, Ali (Debtor/ AR) a/c 300

July 3 Sales a/c 300
(selling of furniture on credit)
5) Payment of liability (debt)
On 15th October 2012, Amin paid the amount owed to Faiz by
issuing a cheque, RM 500.
SOLUTION:
a) Shows the account, effect and action
ACCOUNT EFFECT ACTION
INVOLVED
Faiz a/c Liability: Decrease Dr Faiz a/c
Bank a/c Asset: Decrease Cr Bank a/c

b) Shows the journal entries

DATE ACCOUNTS DEBIT CREDI
T
2012, Faiz a/c 500
Oct 15 Bank a/c 500
(payment of debt by cheque)
6) Collection of debt
On 11th November 2012, Ali paid RM 300 for the amount owed
by issuing a cheque.
SOLUTION:
a) Shows the account, effect and action
ACCOUNT EFFECT ACTION
INVOLVED
Bank a/c Asset: Increase Dr Bank a/c
Ali a/c Asset: Decrease Cr Ali a/c

b) Shows the journal entries

DATE ACCOUNTS DEBIT CREDI
T
2012, Bank a/c 300
Nov 11 Ali a/c 300
(receive payment of debt in cheque)
 EFFECTS OF TRANSACTIONS UPON
ACCOUNTING EQUATION AND ACCOUNTS –
AN EXERCISE

No Date Transaction
2012
1. Feb 3 Ahmad started a business by investing RM50,000 cash
in the business Syarikat Green Zone (SGZ)
2. 5 SGZ deposits RM40,000 into the bank account
3. 8 SGZ purchased 10,000 units of inventory of goods at
RM5 each on credit
4. 10 SGZ purchased RM15,000 furniture paying by cheque
 EFFECTS OF TRANSACTIONS UPON
ACCOUNTING EQUATION AND ACCOUNTS –
AN EXERCISE
No Date Transaction
2012
5. 17 SGZ borrows RM20,000 from Bank Rakyat
6. 21 SGZ sold 6,000 units of inventory of goods at RM12
each, received cheque of RM30,000 and cash of
RM10,000
7. 26 SGZ paid RM300 for electricity, RM1,000 for shop
rent and RM800 for employee salary
8. 28 Ahmad withdraws RM5,000 cash from the business
for his own use
 DOUBLE ENTRY PRINCIPLE FOR INVENTORY

Transactions Effects Accounts Involved

Purchase of goods Purchase expense Dr: Purchase a/c

increase

Sales of goods Sales revenue Cr: Sales a/c

increase
Purchase return Purchase expense Cr: Return Outwards
decrease

Sales return Sales revenue Dr: Return Inwards

decrease
BOOKS OF ACCOUNTS AND LEDGER ENTRIES

2 types of accounts

Nominal account
 Records expenses and revenues
 Temporary in nature
 Any balances will be transferred to income statement

Real account
 Records assets, liabilities, equity (capital and drawings)
 Any balances will be transferred to balance sheet
BOOKS OF ACCOUNTS AND LEDGER ENTRIES

4 Types of Ledgers

Ledgers Function
Sales Ledger Records of individual debtors or
accounts receivable
Purchases Ledger Records of individual creditors or
accounts payable
Cash Book Records of receipts and payments
involving cash and cheque
General Ledger Records of accounts not found in the
above ledgers
 LEDGER ENTRIES AND TRIAL BALANCE – AN
EXERCISE
Date (2012) Transaction

June 1 Laila started her business, Laila Trading, by investing

RM150,000 cash
June 2 Deposited RM140,000 cash into the business bank
June 10 Purchased RM30,000 motor vehicle, paid RM4,000
deposit by cheque and balance is financed by MBF
Finance
June 16 Purchased RM25,000 goods from suppliers on credit

June 20 Sold goods to credit customers for RM30,000

June 26 Business paid a cheque of RM15,000 to suppliers
June 29 Laila withdrew RM500 cash from the business for her own
use
BALANCING OFF LEDGER ACCOUNTS

 The difference between the two sides of an account is

determined to find the balance of that account
 The totals of both sides are added up
 Balancing figure – the difference between the larger
amount and the smaller amount – balance carried down
 Debit balance – total amount of debit entries is greater than
total amount of credit entries
 Credit balance – total amount of credit entries is greater
than total amount of debit entries
TRIAL BALANCE AND ITS PURPOSE

 A list of all ledger accounts with balances on a

particular date
 Accounts with debit balances are placed on the debit
column
 Accounts with credit balances are placed on the credit
column

Purpose
 To check the arithmetical accuracy of double entry rules
 To locate errors within a given time period
 Facilitates the preparation of financial statements
ERRORS IN TRIAL BALANCE
ERRORS AFFECTING TB AGREEMENT
Single Entry
One aspects of a transaction is recorded
E.g: RM200 cash received for accounts receivable was
credited to the accounts receivable account but was not
debited to the cash account.

Errors of Transposition
Figures are written in the wrong order, i.e: debiting and
crediting the accounts with different amount.
E.g: cash sales of RM1,329 was credited to Sales account as
RM1,923.

Errors in Addition
Occurring when debit and credit side are totalled.
Posting to the Incorrect Side of an Account
Debit or credit entry of a transaction is posted to the
wrong side of an account.
Two debits or two credits
E.g: cash of RM1,000 paid to accounts payable is
debited to accounts payable account and also debited to
the cash account.

Errors in the Trial Balance

Errors when transferring account balances from the
ledger to the trial balance.
Total sales and cash account in ledgers is correct but the
total has wrongly transferred to trial balance.
ERRORS NOT AFFECTING TB AGREEMENT
Error of Omission
Entire transaction has not been recorded, or a transaction is
completely omitted from the books of account.
No debit or credit entries.

Error of Commission
Occurs when the correct amount is posted into a wrong account of
the same category of accounts.
E.g: credit sales to Amat was wrongly debited to Ahmad’s account.

Error of Principle
Correct amount is posted into an account but of a different category.
E.g: repairs of motor van worth RM150 were debited to motor van
account (asset) instead of repairs of motor van (expenses)
Complete Reversal of Entries
The amount and the accounts are correct but each item is
shown on the wrong side of the account.

Compensating Errors
An error on the debit side is compensated by an error of equal
amount on the credit side.
The errors cancel out each other.
E.g: credit sales of RM100 was wrongly credited to sales
account as RM1,000. Purchase of RM1,000 was wrongly
credited to accounts payable account as RM100

Error of Original Entry

Errors were made in the books of original entry (journals).
E.g: a sale of RM65 recorded in the journal as RM56 and then
posted to the ledger as RM56.
EXERCISE Trial balance as at 31 December 2012
Debit (RM) Credit (RM)
Capital 23,870
Cash at bank 8,150
Motor vehicle 26,000
Drawings 600
Office equipment 3,700
Sales 29,680
Purchases 10,400
Wages 4,300
Commission received 700
Return Inwards 200
Debtors 9,100
Creditors 16,800
Rent and Rates 8,600
68,480 73,620