20100712160725 chapter 2 double entry system
Transcript of 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
Debit / Dr. Credit / Cr.
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
Debits and CreditsDebits and 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.
Account Name
Debit / Dr. Credit / Cr.
If Debits are smaller thansmaller than Credits, the account will have a credit balance.
$10,000 Transaction #2$3,000
Balance
Transaction #1
Debits and CreditsDebits and 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.
$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
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:
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
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.
Assets - Debits should exceed credits.
Liabilities – Credits should exceed debits.
The normal balance is on the increase side.
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.
Assets and LiabilitiesAssets and Liabilities
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owner’s investments and revenues increase owner’s equity (credit).
Owner’s drawings and expenses decrease owner’s equity (debit).
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.
Owners’ EquityOwners’ Equity
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owners’ CapitalOwners’ Capital
Chapter 3-23
Owners’ DrawingOwners’ Drawing
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
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
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.
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