Dpa1013-Fundamentals of accounting COMMERCE DEPARTMENT Dpa1013-Fundamentals of accounting Lecturer name: En.Wan Mustaffa bin Wan Yusoff

CHAPTER 3 DOUBLE-ENTRY CONCEPT

LEARNING OUTCOMES AT THE END OF THIS CHAPTER, STUDENTS BE ABLE TO : EXPLAIN THE CONCEPT OF DOUBLE-ENTRY ACCOUNTING AS A COMPLETE ACCOUNTING RECORD AND AS A METHOD OF RECORD-KEEPING EXPLAIN THE TYPES AND FUNCTIONS OF REVENEUS , EXPENSES, ASSETS, LIABILITIES, AND CAPITAL ( OWNER’S EQUITY) PREPARE DOUBLE ENTRIES FOR ASSETS, LIABILITIES AND CAPITAL (OWNER’S EQUITY) DIFFERENTIATE BETWEEN SUBSIDIARY ACCOUNT’S AND NON-SUBSIDIARY ACCOUNT’S. UNDERSTAND THE FEATURES AND ENTRIES OF A CASH BOOK (TWO COLUMN AND THREE COLUMN) SHOW THE STEPS NEEDED TO POST ENTRIES FROM A DAY BOOK INTO LEDGER.

DOUBLE-ENTRY CONCEPTS 3.1 - Understand the double-entry concepts 3.2 - know the accounting equation

INTRODUCTION introduction The double-entry system is the basic of the an accounting recording system. INTRODUCTION

ACCOUNTING EQUATION AND THE DOUBLE-ENTRY SYSTEM An accounting equation shows the relationship between three important elements asset,liability,owner’s equity. Asset = Liability + Owner’s Equity

Relationship between assets and the financial resources INVESTMENTS (Financial sources) 3.ASSETS OWNED BY THE BUSINESS 2.EXTERNAL SOURCES -Bank loan -Accounts payable (liabilities) 1. CONTRIBUTION FROM OWNERS (Owner’s equity)

The relationship between an accounting equation and the double-entry = ACCOUNTING EQUATION ASSETS LIABILITIES + OWNER’S EQUITY DEBIT for increases CREDIT for decreases DEBIT for decreases CREDIT for increases DOUBLE-ENTRY SYSTEM

3.2 type and function of accounts Ledger accounts can be divided into five main categories: a) revenues b) expenses c) assets d) liability e) owner’s equity

REVENUES Example of revenues are sales revenues from the sale of goods,service revenues for services provided,commision received,interest received or rent received,discount received,bonus Revenues may also be received from extraordinary business activities such as: a) profit from the sale of used assets b) dividends from investments Revenues accounts have a credit balance.

EXPENSES Examples of expenses incurred are purchases of goods,employee’s salaries and wages,assessment rates and freight charges. Examples of non-ordinary business activity expenses are: a) losses on sale of used assets b) donations Expenses accounts have a debit balance. Assets are divided into two main categories : a) non-current assets b) current assets Assets accounts have a debit balance. ASSETS

LIABILITIES/OBLIGATIONS Liabilities are debts owed by a business entity to external parties. Liabilities can be divided into two main categories: a) non-current liabilities b) current liabilities Liabilities accounts have a credit balance Owner’s equity is the business’ debts to the business owner based on the amount invested by the business owner. The total amount of owner’s equity will be determined by the capital,drawings and business performance(the profit and loss obtained) Capital accounts have a credit balance. OWNER’S EQUITY (CAPITAL ACCOUNT)

Characteristics of non-current assets and current assets example Account balance Non-current assets a)Assets life is longer than one accounting period b)Can be used repeatedly c)Fixed value a)Land and premise b)Vehicles c)Machinery and plants d)Office equipment e)Fixture and fittings f)Leased assets Debit balance Current assets a)Assets that are easily converted into cash b)Value is not fixed a)Cash b)Account receivable c)Inventories d)Prepaid expenses e)A ccurent revenues

Characteristics of non-current liability and current liability example Account balance Non-current liability Debts that must be paid off after one accounting period a)Bank loan b)Debenture c)mortgage Credit balance Current-liabilities Debts that must be paid off within one accounting period a)Accounts creditors b)Bank overdraf

Characteristics of owner’s equity Explanation Accounts balance capital Cash or assets brought into the business by the owner Credit balance drawings a)cash/goods/assets taken by the owner for personal use. b) Reduction of owner’s equity Debit balance Business performance (profit and loss) a)Calculated through the closing account. b)owner’s equity increased if business generates as profit.However,if a loss is obtained,then owner’s equity will be decreased. Debit or credit balance

Non-Subsidiary Accounts Types of accounts Subsidiary Accounts Non-Subsidiary Accounts Accounts receivable Accounts payable Real Accounts Nominal Accounts Liabilities and Owner’s Equity Assets Expenses Revenues Loan Accrued expenses Unearned revenues Capital Cash Bank Premise Land Plants and machineries Office equipment Motor vehicle Fixtures and fittings Furniture Purchases Discount allowed Advertising Rent Salaries and wages Stationeries Assessment rate Freight charges Import duties Commision received Interest received Rent received

LEDGER ENTRIES Definition > the most important books of accounts used to record business transactions. All ledger accounts must be balanced before a trial balance is prepared. A ledger’s account is balanced by comparing the total debit amount with the total credit amount,and determining which amount is larger.

E xample : Debit Acc ount A Credit 2005 RM J an 1 Balan ced b/d 200 Jan 4 Cash 50 10 Sales 273 31 Balanced c/d 42 3 473 Feb 1 Balanced b/d 423 Account B edit Cr Jan 410 Jan 20 Cash 723 31 Balanced c/d 13 723 723 1 Balanced b/d 313

Debit Cash Book Credit 2005 Particulars RM Date Item Fol. Dis. Allo. Example : Debit Cash Book Credit 2005 Particulars RM Jan 2 3 8 14 18 Cash purchase of goods. Cash sales. Paid cheque to ABC Company. Owner deposited his savings into the bank. Ali paid his debt by cash. 800 1,000 1,200 5,000 150 Date Item Fol. Dis. Allo. (RM) Cash Bank Recd. 2005 Jan 3 Sales 1,000 Jan 2 Purchase 14 Capital 5,000 8 Account payable- ABC Company 18 Accaount receivable-Ali 150 1,150 31 Balance c/d Feb 1 b/d Cash (RM) Bank 800 1,200 350 1,150 3,800 5,000

Zaharah is owner of Uniq Style Enterprise Zaharah is owner of Uniq Style Enterprise.Below is the transaction for her business in April 2001. April 1 Started business with RM 10,000 cash in hand RM 30,000 cash at bank. 3 Sold goods to Salmi RM 1,000 and received cash. 5 Sold goods to Fatin RM 3,000 by credit. 8 Purchases furniture RM 700 and paying by cheque. 10 Purchases a fax machine RM 500 by cheque. 13 Paid for stationery by cash RM 550. 15 Purchases goods from Mawar Indah Enterprise by credit RM 6,400. 16 Paid for aircond maintence by cash RM 1,200. 19 Fatin paid her debts RM 1,500 by cheque and given her 10% discount. 22 Paid Mawar Enterprise RM 2,000 by cheque and received RM 100 discount. 25 Paid for utility by cash RM 300. 28 Paid worker salary RM 1,800 by cheque. You are required to prepared a ledger entry for the transaction.

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT (RM) 2001 APRIL 1 Cash Bank Capital (Started business) 10,000 30,000 40,000 3 Sales (Sold goods to salmi by cash) 1000 5 Fatin (Sold goods to Fatin by credit) 3000 8 Purchases (Purchases furnite by cheque) 700

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT 2001 APRIL 10 Purchases Bank (Purchases a fax machine by cheque) 500 13 Stationery Cash (Paid stationery by cash) 550 15 Mawar Indah Enterprise (Purchases goods by credit) 6400 16 Maintence (Paid aircond maintence by cash) 1200

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT 2001 APRIL 19 Bank Discount Allowed Fatin (Fatin paid her debts by cheque and got discount 10%) 1350 150 1500 22 Mawar Enterprise Discount Received (Paid Mawar Enterprise by cheque and received discount) 2000 100 1900 25 Utility Cash (Paid utility by cash) 300 28 Salary (Paid worker salary by cheque) 1800

General Ledger Capital Account 2001 RM 2001 RM April 30 Balance c/d 40,000 April 1 Cash 10,000 Bank 30,000 40,000 40,000 Mei 1 Balance b/d 40,000 Cash Account 2001 RM 2001 RM April 1 Capital 10,000 April 13 Stationery 550 3 Sales 1,000 16 Maintenance expenses 1,200 25 Utility 300 30 Balance c/d 9,050 11,000 11,000 Mei 1 Balance b/d 9,050

Bank Account 2001 RM 2001 RM April 1 Capital 30,000 April 8 Furniture 700 19 Fatin 1,350 10 Office Equipment 500 22 Mawar Enterprise 1,900 28 Salary 1,800 30 Balance c/d 26,450 31,350 31,350 Mei 1 Balance b/d 26,450 Sales Account 2001 RM 2001 RM April 30 Balance c/d 4,000 April 3 Cash 1,000 5 Fatin 3,000 4,000 4,000 Mei 1 Balance b/d 4,000

Fatin Account 2001 RM 2001 RM April 5 Sales 3,000 April 19 Bank 1,350 Discount Allowed 150 30 Balance c/d 1,500 3,000 3,000 Mei 1 Balance b/d 1,500 Furniture Account 2001 RM 2001 RM April 8 Bank 700 April 30 Balance c/d 700 700 700 Mei 1 Balance b/d 700

Office Equipment Account 2001 RM 2001 RM April 10 Bank 500 April 19 Bank 500 30 Balance c/d 500 500 500 Mei 1 Balance b/d 500 Stationary Account 2001 RM 2001 RM April 13 Bank 550 April 30 Balance c/d 550 550 550 Mei 1 Balance b/d 550 Purchases Account 2001 RM 2001 RM April 15 Mawar Indah 2,000 April 30 Balance c/d 2,000 Enterprise 2,000 2,000 Mei 1 Balance b/d 2,000

Mawar Indah Enterprise Account 2001 RM 2001 RM April 22 Bank 2,000 April 15 Purchases 6,400 Discount received 100 30 Balance c/d 4,300 6,400 6,400 Mei 1 Balance b/d 1,500 Maintenance Expenses Account 2001 RM 2001 RM April 16 Cash 1,200 April 30 Balance c/d 1,200 1,200 1,200 Mei 1 Balance b/d 1,200 Discount Allowed Account 2001 RM 2001 RM April 19 Fatin 150 April 30 Balance c/d 150 150 150 Mei 1 Balance b/d 150

Discount Received Account 2001 RM 2001 RM April 30 Balance c/d 100 April 22 Mawar Enterprise 100 100 100 Mei 1 Balance b/d 100 Utility Account 2001 RM 2001 RM April 25 Cash 300 April 30 Balance c/d 300 300 300 Mei 1 Balance b/d 300 Salary Account 2001 RM 2001 RM April 28 Bank 1,800 April 30 Balance c/d 1,800 1,800 1,800 Mei 1 Balance b/d 1,800

Wood & Woods Enterprise started its furniture business on 1 July 2013 Wood & Woods Enterprise started its furniture business on 1 July 2013 . Below is the transaction for the company. You are required to record all the transaction into a ledger. July 1 Started business with RM 35,000 in bank, RM 25,000 cash and RM 70,000 vehicles. 2 Bought stationery RM 800 by cash. 3 Bought furniture for office use RM 10,000 from Cengal Enterprise. 7 Bought furniture for sale RM 60,000 from Marco Enterprise. 11 Sold goods to Ganesh RM 9,000 by credit. 13 Sold goods to Ramli and received cheque RM 8,500. 16 Paid for advertising RM 4,000 by cash. 18 Bought an aircond and paid by cash RM 4,500. 19 Sold goods RM 5,000 and received cheque . 22 Paid RM 10,000 by cash to Marco Enterprise and received RM 250 discount. 24 Sold goods and received cash RM 1,000. 27 Received cheque from debtors RM 2,500. 28 Return defected furniture to Macro Enterprise RM 5,000. 30 Paid salary to worker RM 1,400 and shop rent RM 1,000 by cheque.

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT 2013 July 1 Bank Cash Vehicle Capital (Started business) 35,000 25,000 70,000 130,000 2 Stationery (Bought stationery by cash) 800 3 Office furniture Cengal Enterprise (Bought furniture by credit) 10,000 7 Purchases Macro Enterprise 60,000

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT July 11 Ganesh Sales (Sold goods to Ganesh by credit) 9000 13 Bank (Sold goods to Ramli and received cheque) 8500 16 Advertising Cash (Paid for advertising by cash) 4000 18 Office equipment (Bought aircond by cash) 4500 19 (Sold goods and received cheque) 5000

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT July 22 Macro Enterprise Discount Cash (paid to Marco Enterprise by cash and received discount) 10,000 250 9750 24 Sales (Sold goods and received cash) 1000 27 Bank Debtors (Received cheque from debtors) 2500 28 Return outwards (Return defected furniture) 5000 30 Salary Rent (Paid salary and rent by cheque) 1400 2400

General Ledger Capital Account 2013 RM 2013 RM July 31 Balance c/d 130,000 July 1 Cash 25,000 Bank 35,000 Vehicle 70,000 130,000 130,000 August 1 Balance b/d 130,000 Cash Account 2013 RM 2013 RM July 1 Capital 25,000 July 2 Stationery 800 24 Sales 1,000 16 Advertising 4,000 18 Office Equipment 4,500 22 Marco Enterprise 10,000 31 Balance c/d 6,700 26,000 26,000 August 1 Balance b/d 6,700

Bank Account 2013 RM 2013 RM July 1 Capital 35,000 July 30 Salary 1,400 13 Ramli 8,500 Rent 1,000 19 Sales 5,000 31 Balance c/d 48,600 27 Debtors 2,500 51,000 51,000 August 1 Balance b/d 48,600 Vehicle Account 2013 RM 2013 RM July 1 Capital 70,000 July 31 Balance c/d 70,000 70,000 70,000 August 1 Balance b/d 70,000 Stationery Account 2013 RM 2013 RM July 2 Cash 800 July 31 Balance c/d 800 800 800 August 1 Balance b/d 800

Office Furniture Account 2013 RM 2013 RM July 3 Cengal Enterprise 10,000 July 31 Balance c/d 10,000 10,000 10,000 August 1 Balance b/d 10,000 Cengal Enterprise Account 2013 RM 2013 RM July 31 Balance c/d 10,000 July 3 Office furniture 10,000 10,000 10,000 August 1 Balance b/d 10,000 Purchases Account 2013 RM 2013 RM July 7 Marco Enterprise 60,000 July 31 Balance c/d 60,000 60,000 60,000 August 1 Balance b/d 60,000

Marco Enterprise Account 2013 RM 2013 RM July 22 Cash 10,000 July 7 Purchases 60,000 Discount received 250 28 Return outwards 5,000 31 Balance c/d 44,750 60,000 60,000 August 1 Balance b/d 44,750 Ganesh Account 2013 RM 2013 RM July 11 Sales 9,000 July 31 Balance c/d 9,000 9,000 9,000 August 1 Balance b/d 9,000 Sales Account 2013 RM 2013 RM July 31 Balance c/d 11,000 July 11 Ganesh 9,000 19 Bank 1,000 24 Cash 1,000 11,000 11,000 August 1 Balance b/d 11,000

Ramli Account 2013 RM 2013 RM July 31 Balance c/d 8,500 July 13 Bank 8,500 8,500 8,500 August 1 Balance b/d 8,500 Advertising Account 2013 RM 2013 RM July 16 Cash 4,000 July 31 Balance c/d 4,000 4,000 4,000 August 1 Balance b/d 4,000 Office Equipment Account 2013 RM 2013 RM July 18 Cash 4,500 July 31 Balance c/d 4,500 4,500 4,500 August 1 Balance b/d 4,500

Discount Received Account 2013 RM 2013 RM July 31 Balance c/d 250 July 22 Marco Enterprise 250 250 250 August 1 Balance b/d 250 Debtors Account 2013 RM 2013 RM July 31 Balance c/d 2,500 July 27 Bank 2,500 2,500 2,500 August 1 Balance b/d 2,500 Return Outwards Account 2013 RM 2013 RM July 31 Balance c/d 5,000 July 28 Marco Enterprise 5,000 5,000 5,000 August 1 Balance b/d 5,000

Salary Account 2013 RM 2013 RM July 30 Bank 1,400 July 31 Balance c/d 1,400 1,400 1,400 August 1 Balance b/d 1,400 Rent Account 2013 RM 2013 RM July 30 Bank 1,000 July 31 Balance c/d 1,000 1,000 1,000 August 1 Balance b/d 1,000

The following are the transactions of Usaha Maju Enterprises January 2012. Encik Chan, the owner of Usaha Maju Enterprises invested cash RM20,000 into the business. 5 Furniture amounting to RM2,000 was purchased on credit from Aladin Furniture Bhd. 9 Mr.Chan the owner took cash RM100 for personel use. 10 The business paid a cheque for RM100 for other office supplies. 13 The business paid the full amount owing for the furniture purchased on the 5 of january 2012 by paying with a cheque. 25 The business paid cash RM80 for miscellaneous expenses. 31 The business paid salaries amounting to RM 2,000 with cheque. You are required to prepared a ledger entry for the transaction.

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT 2012 January 1 Capital Cash (Invested cash into the business) 20,000 3 Furniture Aladin Furniture Bhd (Purchased furniture on credit) 2000 9 Drawings (Mr.Chan took cash for personal use) 100 10 Office supplies Bank (Paid other office supplies by cheque) 13 (Paid the full amount for the furniture)

GENERAL JOURNAL DATE PARTICULAR DEBIT (RM) CREDIT January 25 Miscellaneous expenses Cash (Paid miscellaneous expenses by cash) 80 30 Salaries Bank (Paid salaries by cheque) 2000

General Expenses Cash Account 2012 RM 2012 RM Jan 1 Capital 20,000 Jan 1 Drawing 100 25 Miscellaneous Expenses 80 31 Balance c/d 19,820 20,000 20,000 Feb 1 Balance b/d 20,000 Capital Account 2012 RM 2012 RM Jan 31 Balance c/d 20,000 Jan 27 Bank 20,000 20,000 20,000 Furniture Account 2012 RM 2012 RM Jan 5 Aladin Furniture Bhd 2,000 Jan 31 Balance c/d 2,000 2,000 2,000 Feb 1 Balance b/d 2,000

Aladin Furniture Bhd Account 2012 RM 2012 RM Jan 13 Bank 2,000 Jan 5 Furniture 2,000 2,000 2,000 Drawing Account 2012 RM 2012 RM Jan 9 Cash 100 Jan 31 Balance c/d 100 100 100 Feb 1 Balance b/d 100 Office Expenses Account 2012 RM 2012 RM Jan 10 Balance c/d 100 Jan 28 Marco Enterprise 100 100 100 Feb 1 Balance b/d 100

Bank Account 2012 RM 2012 RM Jan 31 Balance c/d 4,100 Jan 10 Office expenses 100 13 Aladin Furniture Bhd 2,000 31 Salary 2,000 4,100 4,100 Feb 1 Balance b/d 4,100 Miscellaneous Expenses Account 2012 RM 2012 RM Jan 25 Cash 80 Jan 31 Balance c/d 80 80 80 Feb 1 Balance b/d 80 Salary Account 2012 RM 2012 RM Jan 31 Bank 2,000 Jan 31 Balance c/d 2,000 2,000 2,000 Feb 1 Balance b/d 2,000