CHP 2 Double Entry Bookkeeping and Books of Original Entry
CHP 2 Double Entry Bookkeeping and Books of Original Entry
CHP 2 Double Entry Bookkeeping and Books of Original Entry
Chapter 2
Double Entry Book Keeping and Books of Original Entry
Increase Decrease
To follow the rules of double entry bookkeeping, each time a transaction is recorded, both effects
must be taken into account.
These two effects are equal and opposite such that the accounting equation will always prove correct:
Traditionally, one effect is referred to as the debit side (abbreviated to Dr) and the other as the credit
side of the entry (abbreviated to Cr)
Name of Account
Debit (Dr) Credit (Cr)
Date Narrative RM Date Narrative RM
The duality concept means that each transaction will affect two ledger accounts.
One account will be debited and the other credited.
Whether an entry is to the debit or credit of an account and the transaction.
Debit Credit
Increase in: Increase in:
Expense (Income Statement) Liability (Balance Sheet)
Asset (Balance Sheet) Income (Income Statement)
Drawings (Balance Sheet) Capital (Balance Sheet)
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 8
Recording cash transactions
Cash transactions are those where payment is or received immediately.
Cheque payments or receipts are classed as cash transactions.
Double entry involves the bank ledger:
Debit Credit
Funds are received Funds are paid out
Example:
Show the following transactions in ledger accounts:
(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.
Solution:
Bank
RM RM
Sales
RM RM
Rent
RM RM
Drawings
RM RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 9
Recording credit and cash/cheque sales and purchases
Credit sales and purchases are transactions where goods or services change hands immediately, but
payment is not made or received until some time in the future.
Money that a business is owed is accounted for in the receivables ledger.
Money that a business is owned is accounted for in the payables ledger.
Solution:
Double entry: Dr ______________, Cr ________________
Purchases
RM RM
Solution:
Double entry: Dr ______________, Cr ________________
Purchases
RM RM
Bank
RM RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 10
Example 3: Sales of inventory on credit
Goods were sold on credit for RM250 to J. Lee.
Solution:
Double entry: Dr ______________, Cr ________________
Sales
RM RM
Solution:
Double entry: Dr ______________, Cr ________________
Sales
RM RM
Cash
RM RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 11
Example 1: Returns inwards
Goods which had been previously sold to F. Lowe for RM29 are returned to the business.
Solution:
Double entry: Dr ______________, Cr ________________
F Lowe
RM RM
Returns Inwards
RM RM
Solution:
Double entry: Dr ______________, Cr ________________
K Howe
RM RM
Returns Outwards
RM RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 12
Solutions:
Payables (Herbie)
RM RM
Receivables (Iris)
RM RM
Discounts Received
RM
Discounts Allowed
RM
Cash
RM RM
Capital 10,000 Purchases 200
Sales 250 Rent 150
Electricity 75
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 13
The Trial Balance
Once the ledger accounts have been balanced off a trial balance is prepared.
A trial balance is a list of the “bal c/d” on the ledger accounts according to whether they are on the
debit or credit side.
Format:
Notes:
Debit Credit
Assets Liabilities
Expenses Income
Capital
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 14
Sources of Information
All entries into these books of original entry must be supported by one of the following
document:
Sources of Document Transaction Type
Sent by the seller to the buyer to inform the latter
of the amount due on goods or services supplied.
Sent by the seller to the buyer when goods have
been overcharged or when the latter returns
goods.
Sent by the seller to the buyer as an additional
invoice when the latter has been undercharged.
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.
Acknowledgement of payment made.
Cash receipt that is issued whenever cash is paid
into a cash register.
Document signed by an 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.
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 15
EXAMPLE
Juliana Sdn. Bhd. received the following invoices from Perdana Enterprise and Wira book Center.
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 16
Step 1: Record credit purchases in Purchases Journal
JULIANA SDN. BHD.
Purcheses Journal
Page 14
Date Particulars Invoice Folio Details of Amount
No. Invoice (RM)
2004
May 13
5601 PL 30
20
S368 PL 24
31 GL 5
Step 2: Posting of credit purchases from Purchases Journal to the Ledger Account
PURCHASES LEDGER
GENERAL LEDGER
Purchases Page5
2004 RM
May
PJ 14
OR
Purchases Page 5
2004 RM
May 13 Perdana Enterprise PJ 14 3,330
Wira Book PJ 14 3,636
6,966
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 17
Dr. Purchases Account (in General Ledger)
Cr. Account Payables (in Purchases Ledger)
The Journal
The journal is a book of prime entry which records transactions which are not routine (and not
recorded in any other books of prime entry), for example:
o Year end adjustments:
Depreciation charge for the year
Irrecoverable debt write-off
Record movement in allowance for receivables
Accruals and prepayments
Closing inventory
o Acquisitions and disposals of non-current assets
o Opening balances for balance sheet items
o Correction of errors
Presentation of a General Journal:
General Journal
Date Particulars Folio Debit Credit
2008 RM
June 20
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 18
Example1:Purchase of Non-current Assets
Motor vehicle is bought from Global Motors on credit for RM4,500 on 20 June 2003.
Journal
Date Particulars Folio Debit Credit
2003 RM RM
June 20 GL 1 4,500
PL 55 4,500
GENERAL LEDGER
PURCHASES LEDGER
Suggested Answer:
His capital will consists of: Assets – Liabilities
= RM23,800 – RM4,800
=
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 19
Step 1: To begin writing the books, these items must be entered into the Journal.
Journal Page 5
Date Particulars Folio Debit Credit
Step 2: Posting the Journal entries to the Ledger or cash Book to open the accounts.
GENERAL LEDGER
Premises Page 1
RM
Inventory Page 7
RM
Capital Page 20
RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 20
SALES LEDGER
John Page 3
RM
Raju Page 5
RM
PURCHASES LEDGER
Mike Page 10
RM
Huang Page 16
RM
Journal page 1
Date Particulars Folio Debit Credit
RM RM
GENERAL LEDGER
Advertising page 5
RM
Purchases page 9
RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 21
b) A debt of RM78 owed by Amanda is written off as a bad debt on 31 Aug 2003.
Journal page 2
Date Particulars Folio Debit Credit
GENERAL LEDGER
Bad Debts page 6
RM
SALES LEDGER
Amanda page 7
RM
Chapter 2: Double Entry Book Keeping and Books of Original Entry Page 22