Chapter 4

PRINCIPLES OF DOUBLE
ENTRY AND TRIAL BALANCE

TOPIC COVERAGE
1. Double entry rules
2. Expanded accounting equation
3. Ledger entries
4. Balancing of ledger account
5. Trial balance (pre-adjusted only)

LEARNING
OBJECTIVES

Introduction

DOUBLE ENTRY
PRINCIPLES
Classification
Assets

DEBIT
increase in Assets

CREDIT
decrease in Assets

Liability

decrease in Liabilities

increase in Liabilities

Capital/ Owners
equity

decrease in Owners
Equity

increase in Owners
Equity

Revenue

decrease in Revenue

increase in Revenue

Expenses

increase in Expenses

decrease in Expenses

DOUBLE ENTRY PRINCIPLES FOR

ASSETS
The double entry principle for assets is:

Assets a/c
Debit

Credit

To record increase in Assets

To record decrease in Assets

i.e Jan 1 Bought equipment paying by cheque RM 1,000

Dt. Equipment a/c RM 1,000
Cr. Bank a/c

RM 1,000
Equipment a/c

Jan 1

Bank

1,000
Bank a/c
Jan 1 Equipment

1,000

DOUBLE ENTRY PRINCIPLES FOR

LIABILITIES
The double entry principle for liabilities is:

Liabilities a/c
Debit

Credit

To record decrease in Liabilities

To record increase in Liabilities

i.e Jan 2 Bought equipment on credit from Streamyx Sdn. Bhd. RM

2,000
Dt. Equipment a/c RM 2,000
Cr. Creditor a/c Streamyx Sdn. Bhd.

RM 2,000

Equipment a/c
Jan 2

Creditor

2,000

Creditor a/c Streamyx Sdn. Bhd a/c

Jan 2 Equipment

2,000

DOUBLE ENTRY PRINCIPLES FOR OWNERS

EQUITY
The double entry principle for Owners Equity is:

Owners Equity a/c

Debit

Credit

To record decrease in Owners

Equity

To record increase in Owners

Equity

i.e Jan 1 The owner started business with RM 10,000 cash in bank
Dt. Bank a/c
Cr. Capital a/c.

RM 10,000
RM 10,000
Bank a/c

Jan 1

Capital

10,000
Capital a/c
Jan 1 Bank

10,000

DOUBLE ENTRY PRINCIPLES FOR

EXPENSES
o The double entry principle for Expenses is:

Expenses a/c
Debit

Credit

To record increase in Expenses

To record decrease in Expenses

i.e Jan 6 Paid salary by cheque RM 300

Dt. Salary a/c
Cr. Bank a/c.

RM 300
RM 300
Salary a/c

Jan 6

Bank

300
Bank a/c
Jan 6

300

Salary

DOUBLE ENTRY PRINCIPLES FOR

REVENUE
o The double entry principle for Revenue is:

Revenue a/c

i.e

Debit

Credit

To record decrease in Revenue

To record increase in Revenue

Jan 8 Received cash for house rental RM 450

Dt. Cash a/c

RM 450

Cr. Rent Received a/c.

RM 450

Cash a/c
Jan 8

Rent received

450
Rent Received a/c
Jan 8
450

Cash

DOUBLE ENTRY PRINCIPLES FOR

STOCK
The double entry are as follows:

Transactions

Effects

Double entry

Purchased of
goods

Purchase Expense
Increase

Debit Purchases
a/c

Sales of goods

Sales Revenue
Increase

Credit Sales a/c

Purchases Returns

Purchase Expense
decrease

Credit Purchase
Returns a/c

Sales Returns

Sales Revenue
decrease

Debit Sales Return

a/c

DOUBLE ENTRY PRINCIPLES FOR

STOCK (contd)
o

Double entry principle for purchase of goods is :

Purchase a/c
Debit

Credit

To record increase in
purchase

To record decrease in
purchase

ie Jan 3 Purchased goods on credit from Siti Ent

RM2000
Dt. Purchase
RM2000
Cr. Creditor Siti Ent
RM2000
Purchases a/c
Jan 6 Creditor - Siti Ent

Purchases

2, 000

Creditor - Siti Enterprise a/c

Jan 6
2,000

DOUBLE ENTRY PRINCIPLES FOR

STOCK (contd)
i.e Jan 17 Bought goods from Jenny paying by cheque RM 400
Dt. Purchases a/c
Cr. Bank a/c

Jan 17 Bank

RM 400
RM 400
Purchases a/c
400
Bank a/c
Jan 17

400

Purchases

DOUBLE ENTRY PRINCIPLES FOR

STOCK (contd)
o The double entry principle for purchase return is :
Debit

Purchase return a/c

Credit
To increase purchase
return

i.e Jan 7 Returned goods to Siti Enterprise RM 100

Dt. Creditor - Siti Enterprise
Cr. Purchases Return a/c

RM 100
RM 100

Creditor - Siti Enterprise a/c

Jan 7 Purchases Return 100
2,000

Jan 6
Purchases Return a/c
Jan 7 Creditor

Purchases

100

DOUBLE ENTRY PRINCIPLES FOR

STOCK (contd)
o The double entry principle for sales is :
Sales a/c
Debit

i.e

Credit

To record decrease in
To record increase in
sales
sales
Jan 8 Credit Sales to Zila RM 400
Dt. Debtor Zila a/c
Cr. Sales a/c

Jan 8

Sales

RM 400
RM 400
Debtor Zila a/c
400
Sales a/c
Jan 8
400

Debtor - Zila

DOUBLE ENTRY PRINCIPLES FOR

STOCK (contd)
i.e

Jan 19 Cash sales to Ali Baba RM 240

Dt. Cash a/c

RM 240

Cr. Sales a/c

Jan 19 Sales

RM 240
Cash a/c
240
Sales a/c
Jan 19

240

Cash

DOUBLE ENTRY PRINCIPLES FOR

STOCK (contd)
o The double entry principle for sales return is :
Sales return a/c
Debit

i.e

Credit

To record increase in sales

return
Jan 15 Zila returned defective goods worth RM 40
Dt. Sales return a/c

RM 40

Cr. Debtor Zila a/c

Jan 15

RM 40
Sales return a/c
40

Debtor Zila

Debtor Zila a/c

Jan 8

Sales
40

400

Jan 15

Sales Return

TRANSPORTATION COST FOR

PURCHASE & SALES OF GOODS
Transportation
Costs

DOUBLE ENTRY

ACCOUNT TO
RECORD

Freight or
carriage
outwards:
The cost of
transport paid to
send the goods
sold to the buyers
premises

Dt. Carriage outwards

a/c
Cr. Cash/ Bank a/c

Trading a/c
(as part of the cost of
goods purchased)

Freight or
carriage inwards:
The cost of
transport paid to
bring in the goods
bought to the
business premises

Dt. Carriage inwards

a/c
Cr. Cash/ Bank a/c

Profit & Loss a/c

(expenses)

DOUBLE ENTRY PRINCIPLES FOR

TRADE DISCOUNT

DOUBLE ENTRY PRINCIPLES FOR

TRADE DISCOUNT (contd)
Journal entries
Dt. Purchases a/c

RM 1,900

Cr. Creditor - Teepah Trading

RM 1,900

Purchases a/c
Jan 25

Creditor Teepah Trading 1,900

Creditor - Teepah Trading a/c
Jan 25

1,900

Purchases

DOUBLE ENTRY PRINCIPLES FOR

CASH DISCOUNT

DOUBLE ENTRY PRINCIPLES

FOR
CASH DISCOUNT
Journal entry 1
Discount Received

Discount Allowed

Journal entry 2

Dt. Creditor a/c

Dt. Creditor a/c

Cr. Discount
Receive a/c

Cr. Bank a/c

Dt. Discount
Allowed a/c
Cr. Debtor a/c

Dt. Bank a/c

Cr. Debtor

DOUBLE ENTRY PRINCIPLES

FOR
CASH DISCOUNT (contd)
o The double entry principle for discount

received is :
Debit

Credit
Discount
received a/c
To record discount
received

i.e Jan 18 purchased from Jenny Trading

RM1900
Jan 31 paid Jenny Trading by cheque
after deducting cash discount 2%

DOUBLE ENTRY PRINCIPLES FOR

CASH DISCOUNT (contd)
o Journal Entry 1
Dt. Creditor (Jenny) a/c

RM38

Cr. Discount Receive a/c

RM38

Creditor Jenny Trading

Jan31
Discount Received
Purchases
1,900
Jan 31

Bank

38

Jan 18

1,862
Discount Received a/c
Jan 3

38
oJournal Entry 2
Dt. Creditor (Jenny) a/c RM1862
Cr. Bank a/c

RM1862

Jenny Trading

DOUBLE ENTRY PRINCIPLES

FOR
CASH DISCOUNT (contd)
The double entry principle for discount allowed

is :
Discount
allowed a/c
Debit

Credit

To record discount
allowed

i.e Jan 19 sold goods to Ahmad (debtor)

RM3,000
Jan 31 received payment by cheque after
deducting cash discount of 2%

DOUBLE ENTRY PRINCIPLES

FOR
CASH DISCOUNT (contd)
o Journal Entry 1
Dt. Discount Allowed a/c
Cr. Debtor a/c

RM60
RM60
Debtor - Ahmad

Jan 19 Sales
allowed

3,000

Jan 31

Discount

60
Jan 31

2,940
Discount Allowed a/c
Jan 31 Debtor Ahmad
o Journal Entry 2
Dt. Bank a/c
RM2940
Cr. Debtor a/c
RM2940
Bank a/c

60

Bank

Trial Balance
A trial balance is a list of all the ledger

accounts balances.
It is usually prepared at the end of the
accounting period so as to enable us to
prepare the financial statements of the
business.
The basic reason for the preparation of the
trial balance is to test the accuracy of the
ledger by showing whether the total debits
equal the total credits.

Preparation of trial
balance
The preparation of a trial balance is
very simple which involves the
following :

1. Listing each account title and putting the

balance in either debit or credit.

2. Totaling the debit and credit column. The
column totals must be equal.

THE TRIAL BALANCE

DEBIT (RM)
Equipment

3,000

Capital
Salary

10,000
300

Rent

450

Bank

9,378

Cash

690

Purchase

6,200

Purchase return

100

Sales
Debtor
Sales return

3,640
360
40

Creditor
Discount allowed

CREDIT (RM)

5,800
60

Discount received

38
20,028

20,028

END