C hapter 5: The double entry system:

Revenue and expenses

Contents of chapter
This chapter shows how to calculate the gross profit and net profit of a business. To find the gross profit we
must deduct the cost of goods sold from sales. To find the net profit, we must deduct expenses from the gross
profit. This chapter also shows how to record expenses, revenues and drawings.

Notes for teachers

Students should understand the meaning of ‘revenue’ and ‘expenses’ as used in accounting.
1

A company can have several types of revenue as their income.

2

Revenues, such as sales or rent received, are recorded on the credit side of their accounts and expenses
3
are recorded on the debit side of their accounts.

Drawings are not an expense and entries are shown as debits. These will reduce the capital of the
4
business.

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Answers to MCQs and exercises
5.1 B 5.2 C 5.3 C 5.4 D 5.5 B

5.6
(a) Dr Rent, Cr Cash
(b) Dr Purchases, Cr Cash
(c) Dr Bank, Cr Rates
(d) Dr General expenses, Cr Bank
(e) Dr Cash, Cr Commission received

5.7X
(a) Dr Cash, Cr Capital
(b) Dr Purchases, Cr W Chan
(c) Dr Bank, Cr Commission received
(d) Dr Motor expenses, Cr Cash
(e) Dr R Tam, Cr Sales
(f) Dr Drawings, Cr Cash
(g) Dr Cash, Cr D Fu
(h) Dr Returns inwards, Cr R Tam
(i) Dr W Chan, Cr Returns outwards

5.8
Capital M Moon
$ $ $
(1) Bank 2,000 (18) Returns outwards 23 (2) Purchases 175

Bank Fixtures
$ $ $
(1) Capital 2,000 (3) Fixtures 150 (3) Bank 150
(21) Rent received 5 (24) Van 300
S Wong
Cash $
$ $ (6) Purchases 114
(5) Sales 275 (10) Rent 15
(12) Stationery 27 Rent
(30) Wages 117
$
(31) Drawings 44
(10) Cash 15

Purchases
Stationery
$
$
(2) M Moon 175
(12) Cash 27
(6) S Wong 114
Returns Outwards
Sales
$
$
(18) M Moon 23
(5) Cash 275
(23) T Hung 77
Rent Received
$
(21) Bank 5

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 T Hung Wages
$ $
(23) Sales 77 (30) Cash 117

Van Drawings
$ $
(24) Bank 300 (31) Cash 44

5.9X
Bank Sales
20X6 $ 20X6 $ 20X6 $
Jul 1 Capital 28,000 Jul 4 Cash 3,000 Jul 10 L Sun 800
" 20 L Sun 200 " 5 Insurance 306 " 25 N Tong 290
" 8 Machinery
expenses 50 L Sun
" 17 Rent 3,800
20X6 $ 20X6 $
" 21 H Mok 700
Jul 10 Sales 800 Jul 20 Bank 200
" 31 Express Ltd 120
Returns Outwards
Capital
20X6 $
20X6 $
Jul 11 K Wai 70
Jul 1 Bank 28,000
Drawings
Purchases
20X6 $
20X6 $ 20X6 $
Jul 13 Purchases 500
Jul 3 K Wai 15,000 Jul 13 Drawings 500
Wages
K Wai
20X6 $
20X6 $ 20X6 $
Jul 14 Cash 400
Jul 11 Returns outwards 70 Jul 3 Purchases 15,000
Rent
Cash
20X6 $
20X6 $ 20X6 $
Jul 17 Bank 3,800
Jul 4 Bank 3,000 Jul 14 Wages 400
" 28 Rent received 200
Stationery
Insurance 20X6 $
Jul 23 Express Ltd 120
20X6 $
Jul 5 Bank 306
Express Ltd
Machinery 20X6 $ 20X6 $
Jul 31 Bank 120 Jul 23 Stationery 120
20X6 $
Jul 7 H Mok 1,000
N Tong
H Mok 20X6 $
Jul 25 Sales 290
20X6 $ 20X6 $
Jul 21 Bank 700 Jul 7 Machinery 1,000
Rent Received
Machinery Expenses 20X6 $
Jul 28 Cash 200
20X6 $
Jul 8 Bank 50

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5.10
Capital Stationery
$ $
(1) Cash 1,500 (7) Bank 15

Cash Returns Outwards

$ $ $
(1) Capital 1,500 (3) Rent 28 (14) A Chang 17
(11) Sales 49 (4) Bank 1,000
(20) Building repairs 18 L Moon
(28) Purchases 125
$
(30) Motor expenses 15
(17) Sales 29

Bank
Building Repairs
$ $
$
(4) Cash 1,000 (7) Stationery 15
(20) Cash 18
(27) A Chang 279
(29) Van 395
Returns Inwards
Purchases $
(22) C Long 14
$
(2) A Chang 296
Van
(28) Cash 125
$
Sales (29) Bank 395
$
Motor Expenses
(5) C Long 54
(11) Cash 49 $
(17) L Moon 29 (30) Cash 15

A Chang Fixtures
$ $ $
(14) Returns outwards 17 (2) Purchases 296 (31) A Wong 120
(27) Bank 279
A Wong
Rent $
$ (31) Fixtures 120
(3) Cash 28

C Long
$ $
(5) Sales 54 (22) Returns inwards 14

5.11X
Bank Cash
20X5 $ 20X5 $ 20X5 $ 20X5 $
Jun 1 Capital 10,000 Jun 2 Shop fittings 240 Jun 1 Capital 4,500 Jun 5 Insurance 950
" 16 Loan from " 9 Rent 1,500 " 18 Office stationery 15 " 15 Wages 3,200
H Chung 6,800 " 10 Rates 250
" 17 W Wing & Co 410 " 10 Panda Ltd 180 Capital
" 20 Insurance 50 " 28 C Mok 1,000
20X5 $
" 25 Pang & Co 220 " 28 K Tong Ltd 575
Jun 1 Bank 10,000
" 25 H Poon Ltd 500 " 30 Drawings 3,000
" 1 Cash 4,500

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 Purchases Office Stationery
20X5 $ 20X5 $ 20X5 $
Jun 1 F Chip 690 Jun 8 Panda Ltd 180 Jun 18 Cash 15
" 1 K Ming 1,188
" 1 C Mok 1,233 Panda Ltd
20X5 $ 20X5 $
F Chip Jun 10 Bank 180 Jun 8 Office stationery 180
20X5 $
Jun 1 Purchases 690 Rent
20X5 $
K Ming Jun 9 Bank 1,500
20X5 $ 20X5 $
Jun 11 Returns Jun 1 Purchases 1,188 Rates
outwards 168
20X5 $
Jun 10 Bank 250
C Mok
20X5 $ 20X5 $ Returns Outwards
Jun 28 Bank 1,000 Jun 1 Purchases 1,233
20X5 $
Jun 11 K Ming 168
Shop Fittings
20X5 $ Pang & Co
Jun 2 Bank 240
20X5 $ 20X5 $
" 3 K Tong Ltd 575
Jun 13 Sales 820 Jun 25 Bank 220

K Tong Ltd
Returns Inwards
20X5 $ 20X5 $
20X5 $
Jun 28 Bank 575 Jun 3 Shop fittings 575
Jun 14 W Wing & Co 40

Insurance
Wages
20X5 $ 20X5 $
20X5 $
Jun 5 Cash 950 Jun 20 Bank 50
Jun 15 Cash 3,200

Sales
Loan from H Chung
20X5 $
20X5 $
Jun 7 W Wing & Co 450
Jun 16 Bank 6,800
" 7 H Poon Ltd 300
" 13 Pang & Co 820
Drawings
" 13 H Poon Ltd 650
20X5 $
W Wing & Co Jun 30 Bank 3,000
20X5 $ 20X5 $
Jun 7 Sales 450 Jun 14 Returns inwards 40
" 17 Bank 410

H Poon Ltd
20X5 $ 20X5 $
Jun 7 Sales 300 Jun 25 Bank 500
" 13 Sales 650

18