20100712160725 chapter 2 double entry system

Chapter 2

THE DOUBLE ENTRY BOOKKEEPING

(SISTEM CATATAN BERGU)

1. Explain what an account is and how it helps in the recording process.

2. Define debits and credits and explain their use in recording business transactions.

3. Identify the basic steps in the recording process.

Study ObjectivesStudy Objectives

The AccountThe Account

Debits and credits

Expansion of basic equation

Steps in the Recording Process

Steps in the Recording Process

The Recording Process

Illustrated

The Recording Process

Illustrated

The Trial Balance

The Trial Balance

Limitations of a trial balance

Locating errors

Use of dollar signs

Summary illustration of journalizing and posting

The Recording ProcessThe Recording Process

Journal

Ledger

Account Name

Debit / Dr. Credit / Cr.

Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

Debit = “Left”

Credit = “Right”

AccounAccountt

An Account can An Account can be illustrated be illustrated

in a T-Account in a T-Account form.form.

LO 1 Explain what an account is and how it helps in the recording LO 1 Explain what an account is and how it helps in the recording process.process.

The AccountThe Account

THE ACCOUNTS FOR DOUBLE ENTRY

10$ 10$

Equity

kettle account bank account

Assets Liabilities

The left hand side is called debit side; the right side is called the credit side.(T- account)

Eg. If you paid RM10 by cheque for kettle, so debit the kettle account and credit bank account

Double-entry Double-entry accounting system

Each transaction must affect two or more accounts to keep the basic accounting equation in balance.

Recording done by debiting at least one account and crediting another.

DEBITS must equalmust equal CREDITS.

LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.

Debits and CreditsDebits and Credits

In terms of asset, liabilities, and capital

1. To increase an asset we make debit entry.

2. To decrease an asset we make a credit entry

3. To increase a liability/capital account we make a credit entry

4. To decrease a liability/capital account we make a debit entry.

Account Name


If Debits are greater thangreater than Credits, the account will have a debit balance.

$10,000 Transaction #2$3,000

$15,000$15,000

8,000Transaction #3

Balance

Transaction #1



Account Name


If Debits are smaller thansmaller than Credits, the account will have a credit balance.

$10,000 Transaction #2$3,000

Balance

Transaction #1



$1,000$1,000

8,000 Transaction #3

Expansion of the Basic EquationExpansion of the Basic Equation

Relationship among the assets, liabilities and owners’ equity of a business:

The equation must be in balance after every transaction. For every Debit there must be a Credit.

Illustration 2-11Assets Liabilities= Owners’ Equity

Basic Equation

Expanded Basic Equation


+

Debits:

a.increase both assets and liabilities.

b.decrease both assets and liabilities.

c. increase assets and decrease liabilities.

d.decrease assets and increase liabilities.

Review Question

Debits and Credits SummaryDebits and Credits Summary


Assets - Debits should exceed credits.

Liabilities – Credits should exceed debits.

The normal balance is on the increase side.


Assets and LiabilitiesAssets and Liabilities

Chapter 3-23

AssetsAssets


Normal BalanceNormal Balance

Chapter 3-24

LiabilitiesLiabilities



Owner’s investments and revenues increase owner’s equity (credit).

Owner’s drawings and expenses decrease owner’s equity (debit).


Owners’ EquityOwners’ Equity

Chapter 3-25



Owners’ CapitalOwners’ Capital

Chapter 3-23

Owners’ DrawingOwners’ Drawing



Chapter 3-25



Owners’ EquityOwners’ Equity

Accounts that normally have debit balances are:

a.assets, expenses, and revenues.

b.assets, expenses, and owner’s capital.

c. assets, liabilities, and owner’s drawings.

d.assets, owner’s drawings, and expenses.

Review Question

Debits and Credits SummaryDebits and Credits Summary


Eg 1…..

o The owner starts the business with RM10,000 in cash on 1 August 20X8.

o The effect…

Effect Action1. Increases the asset of cash

Debit the cash account

2. Increases the capital Credit the capital account

Answer…

20x8 20x8Aug 1 Capital 10,000 Aug 1 Cash 10,000

Cash Capital

Cash Capital

Eg 2…..

o A van is bought for RM4,500 cash on 2 August 20X8.

o The effect…

Effect Action1. Increases the asset of van

Debit the van account

2. Decreases the asset of cash

Credit the cash account

Answer…

20x8 20x8Aug 2 Cash 4,000 Aug 2 Van 4,500

Van Cash

Eg 3…..

o Fixtures (e.g. shelves) are bought on credit from shop Fitters for RM1,250 on 3 August 20X8.

o The effect…

Effect Action1. Increases the asset of fixtures

Debit the fixtures account

2. Increases the liability of Shop Fitters.

Credit the Shop Fitters account

Answer…

20x8 20x8Aug 3 Shop Fitters 1,250 Aug 3 Fixtures 1,250

Fixtures Shop Fitters

Eg 4…..

o Paid the amount owing to Shop Fitters in cash on 17 August 20x8.

o The effect…

Effect Action

1. Decreases the liability of Shop Fitters

Debit the Shop Fixtures account

2. Decreases the asset of cash.

Credit the cash account

Answer…

20x8 20x8Aug 17 cash 1,250 Aug 17 S Fitter1,250

Shop Fitters Cash

Combining all four transactions,

20x8 20x8 20x8Aug 1 10,000 Aug 2 4,500 Aug 1 10,000

17 1,250

Cash Capital

20x8 20x8 20x8Aug 2 4,500 Aug 17 1,250 Aug 3 1,250

Van Shop Fitters

Answer…

20x8Aug 3 1,250

Fixtures

Complete the following tableAccount to be debited

Account to be credited

a.Bought office machinery on credit from D Isaacs Ltd.

b. The proprietor paid a creditor, C Jones, from his private funds.

c. A debtor, N Fox, paid us in cash.

d. Repaid part of loan from P Exeter by cheque.

e. Returned some of office machinery to D

Isaacs Ltd.

f. A debtor, N Lyn, pays us by cheque.

g. Bought van by cash.

REVIEW QUESTIONSREVIEW QUESTIONS

End – Chapter 2

Documents

20100712160725 chapter 2 double entry system