5th Edition

Copyright © 2016 by McGraw-Hill Education (Malaysia) Sdn Bhd All rights reserved.
DOUBLE ENTRY PRINCIPLE

CHAPTER 4
 A T-account
ACCOUNT

Right side Left side

DEBIT CREDIT
 ACCOUNT
The title of the account must be at the centre.
Two main columns/sides: Left side and right side.
Left side is known as debit side, right side is
known as credit side.

The account will show:

• either an increase or decrease in specific asset,
liability, owner’s equity, revenues and
expenses.
DOUBLE ENTRY PRINCIPLE FOR ASSETS,
LIABILITIES AND CAPITAL
ACCOUNT

DEBIT CREDIT

To record INCREASE in assets To record DECREASE in assets

To record DECREASE in liabilities To record INCREASE in liabilities

To record DECREASE in capital To record INCREASE in capital

 ASSETS
ACCOUNT

DEBIT CREDIT

To record INCREASE To record DECREASE

in assets in assets
 LIABILITIES
ACCOUNT

DEBIT CREDIT

To record DECREASE To record INCREASE

in liabilities in liabilities
 CAPITAL

ACCOUNT

DEBIT CREDIT

To record DECREASE To record INCREASE

in capital in capital

Note: when owner brings in any assets into his business it will increase his capital,
withdrawals will decrease the owner’s capital but is recorded in drawings account.
 DOUBLE ENTRY PRINCIPLE FOR
EXPENSES AND REVENUES
ACCOUNT

DEBIT CREDIT

To record INCREASE in expenses To record DECREASE in expenses

To record DECREASE in revenues To record INCREASE in revenues

The double entry rules for expenses will be same as assets, whereas the double
entry rules for revenues is the same as liabilities and capital.
 EXPENSES
ACCOUNT

DEBIT CREDIT

To record INCREASE To record DECREASE

in expenses in expenses
 REVENUES

ACCOUNT

DEBIT CREDIT

To record DECREASE To record INCREASE

in revenues in revenues
 DOUBLE ENTRY PRINCIPLE FOR
INVENTORY
TRANSACTION EFFECTS ACCOUNT INVOLVED

Purchases of goods Purchases expenses Debit purchases account

increase
Sales of goods Sales revenues increase Credit sales account

Purchases return Purchases expenses Credit purchases return or

decrease Return outward account
Sales return Sales revenues decrease Debit sales return or
Return inward account
 TRADE DISCOUNT

 An allowance given by the seller to the buyer to

encourage the buyer to buy in bulk (large quantity).

 Will be deducted direct from the total selling price.

 Will not be recorded in the books of accounts.

 CASH DISCOUNT
 An allowance given by the seller to the buyer to
encourage the buyer to make prompt payment.

 2 types of cash discount:

 discount allowed (given to the buyer)
 discount received (given by the seller)

 Discount received is treated as revenue to the business.

 Discount allowed is an expense to the business.
 Both will be recorded in the statement of profit and loss.
 JOURNAL ENTRY
 DISCOUNT RECEIVED:

Dr Accounts payables account

Cr Discount received account

 DISCOUNT ALLOWED:

Dr Discount allowed account

Cr Accounts receivables account
 CARRIAGE
CARRIAGE INWARD:
The cost of transportation paid to bring the goods
bought to the business premises.

CARRIAGE OUTWARD:
The cost of transportation paid to deliver the goods sold
to the buyer’s premises.

Dr Carriage inward account @ Carriage outward account

Cr Cash @ Bank account