Chapter 2 The Double Entry System for assets, liabilities and capital Learning Objectives What is Double Entry? Double Entry System follows the rules of the Accounting Equation Transaction record in the individual accounts T – account The meaning by of the term Debit and Credit Table showing on how to record increases and decreases of assets, liabilities and capital in accounts Enter a series of transactions into T - accounts P1

1. Double Entry A system where each transaction is entered twice, one on the debit side and one on credit side of the account Ex: Sale goods with cash to customer Cash acc-Debit Sale acc-Credit

2. Double Entry System follows the rules of the Accounting Equation TITLE OF THE ACCOUNT WRITTEN HERE Left hand side of the page Right hand side of the page This is the Debit side This is the Credit side

In terms of assets, liabilities and capital : To increase an asset we make a DEBIT entry To decrease an asset we make a CREDIT entry To increase a liability / capital a/c we make a CREDIT entry To decrease a liability / capital a/c we make a DEBIT entry Accounts To record Entry in the account Assets An increase A decrease Debit Credit Liabilities Capital

The relationship between Rules of Debit & Credit and Accounting Equation is as below : Accounting Equation Asset = Liabilities + Owner’s Equity Rules Of Dr and Cr Dr Cr = Dr Cr + Dr Cr

3. Transaction recorded in the individual account An account is a page specifically designed to record the changes in each individual item affecting the financial position. There is one account for each item.

4. The layout of T-account ACCOUNT TITLE HERE - the top stroke of the T This line separates the 2 side and is the down stroke of the T

5. The terms Debit and Credit TITLE OF THE ACCOUNT WRITTEN HERE Left hand side of the page Right hand side of the page This is the Debit side This is the Credit side

To record increase in To record decrease ASSET in ASSET DOUBLE ENTRY RULE FOR ASSET ASSET a/c To record increase in To record decrease ASSET in ASSET Ex: Jan 1 Bought fixtures by cash RM5,000 Journal entries Dr. Fixtures a/c RM 5,000 Cr. Cash/Bank a/c RM 5,000 Ledger entries

To record decrease in To record increase in LIABILITIES LIABILITIES DOUBLE ENTRY RULE FOR LIABILITIES LIABILITIES a/c To record decrease in To record increase in LIABILITIES LIABILITIES Ex: Jan 2 Bought fixtures by credit from Sherry RM1,000 Journal entries Dr. Fixtures a/c RM 1,000 Cr. Creditor- Sherry a/c RM 1,000 Ledger entries

To record decrease in To record increase CAPITAL in CAPITAL DOUBLE ENTRY RULE FOR CAPITAL CAPITAL a/c To record decrease in To record increase CAPITAL in CAPITAL Ex: Jan 1 The owner deposited cash RM20,000 into the business Journal entries Dr. Cash/Bank a/c RM 20,000 Cr. Capital a/c RM 20,000 Ledger entries

End of Chapter 2