Chapter 3 The double entry system and general ledger

The Double Entry
System and General
Ledger

Bookkeeping versus Accounting

……………………………………………..
Accounting is the process by where a company's financials are recorded,
summarized, analyzed, consulted and reported on. Bookkeeping is the recording
part of this process, in which all of the financial transactions of the business
(consisting of income and expenses) are entered into a database.

Principles of Double Entry System

Every business transaction has its effect on the fundamental of accounting
equation. However, the equality between the assets and the total of the liabilities
and the owner’s equity will always be maintained.
Double Entry Accounting

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Figure : Double Entry Accounting

Transaction And Analyze
The Effects On The Accounting Equation

We shall now study the following transactions and analyze the effects of the
transactions on the accounting equation.
Transaction 1:
Mr. Yunos brought RM50, 000 as his capital contribution for the business.

Owner’s Equity + Liabilities = Asset
Capital 0 Cash
RM50,000
RM50,000

Transaction 2:

The business bought furniture for RM 4,000 on credit.

Owner’s Equity + Liabilities = Asset

Capital Account Cash Furniture

payable

Old RM50,000 RM50,000

balance

Effects RM4,000 RM4,000
RM4, 000
New RM50,000 RM4,000 RM50, 000

balance

Transaction 3:

The business bought a van for RM 20 000 paid by cash.

Owner’s Equity + Liabilities =Asset
Capital
Account Total Cash Furniture Vehicle Total

payable

2

Old 50,000 4,000 54,000 50,000 4,000 20,000 54,000
balance 50,000 4,000 54,000 4,000 20,000
Effects -20,000 0
30,000 54,000
New
balance

Transaction 4:

The owner withdrew cash of RM 500 for personal use.

Owner’s Equity + Liabilities =Asset

Capital Account Total Cash Furniture Vehicle Total
payable
54,000
Old 50,000 4,000 54,000 30,000 4,000 20,000
-500
balance
53,500
Effect -500 -500 -500

New 49,500 4,000 53,500 29,500 4,000 20,000

balance

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Chapter 3
The Double Entry System and the General Ledger

Example Question and Answer

1.
Analyse the effects of the following transactions on the accounting equation. Adapt
the format as given.

a) Bought office equipment for RM8,000 on credit
b) Received cash of RM4,000 for services provided
c) Paid rent of RM3,000 in cash
d) Sent bills amounting RM2,500 to clients for sales provided
e) Received RM1,450 from debtors

ANSWER:

Asset + Expenses = Liabilities + Capital +Revenue

No ASSETS EXPENSES LIABILITIES REVENUE
Rent Creditors Sales
Cash Office Debtors
Equipment 3,000 8,000 4,000
a 2,500
b 8,000
c-
d 4,000 8,000 2,500 3,000 8,000 6,500
e 3,000 - 1,450 14,500

TOTAL 1,450 1,050
2,450

14,500

A summary of the effect upon assets, liabilities and capital or equity of each type
of transaction you’ve been introduced to so far is shown below:

(Please draw for increases and for decreases )

Example of transaction Effect upon asset,liabilities and capital

( account )

Increase asset Increase capital

(1) Owner pays capital (bank) (capital)
into the bank

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(example) Decrease asset Increase asset
(Bank ) (inventory)
(2) Buy inventory by
cheque

(3) Buy inventory on credit Increase asset Increase assets
(Inventory ) (accounts receivable)
(4) Sale of inventory on Increase asset
credit Decrease asset (accounts receivable)*
(Inventory )
(5) Sale of inventory for
cash (cheque) Decrease asset Increase asset
(inventory ) (bank)
(6) Pay creditor
Decrease asset Decrease capital
(7) Debtors pays money (Bank) (accounts payable)
owing by cheque
Increase asset Decrease asset
(8) Owner takes money (Bank) (accounts receivable) *
out of the business
bank account for own Decrease asset Decrease capital
use (Bank) (withdrawal)

(9) Owner pays creditor Decrease liability Increase capital
from private money (accounts payable)* (withdrawal)
outside the firm

*Accounts receivable = debtors Accounts payable = creditors

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JOURNAL
Accounting personnel record transactions in a journal.
The journal is a chronological record of business events by account.
A journal may be a general journal or a special journal.
A general journal allows any type of accounting transaction to be recorded.
A special journal captures specific types of transactions.

Transactions Account Account
Debited Credited

Credit purchase Purchase Creditors

Credit sales Debtors Sales

Return inwards (sales return) Return inwards Debtors

Return Outwards (purchase Creditors Return outwards
returns) Purchases Cash/Bank
Cash payment

Cash receipt Cash/Bank Sales

Table 2.1: Types Of Transactions And Corresponding Accounts

General Journal

Below shows the format of a General Journal:

Date Particulars Folio Debit (RM) Credit (RM)
XX Dr Account A XXXX

Cr Account B

XXXX

Transac Name of Amount for the Amount for the
tion debited credited
date account to be account account

credit

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Example 1:
a. Jan 1 ,bought office machinery on credit from D Isaacs Bhd RM1,000

Date Particulars Folio Debit (RM) Credit (RM)
Jan 1 Office machinery 1,000 1,000

D Isaacs Bhd - creditors

Example 2:
b. Jan 2 ,bought van by cash RM20,000

Date Particulars Folio Debit (RM) Credit (RM)
Jan 2 Van 20,000 20,000

Cash

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Analysis Chart

Example 1: Asset Account and Owner’s Equity Account
Transaction: Mohd Faez commenced business with RM80,000 cash at bank.
Analysis (a) Asset (cash at bank) increased by RM80,000

(b) Owner’s equity (capital ) increased by RM80,000

Analysis Chart

ACCOUNTS TYPE OF EFFECTS JOURNAL ENTRY
INVOLVED ACCOUNTS Debit (RM) Credit (RM)
Cash at bank Assets
Owner’s equity 80,000
Capital 80,000

Record into the General Journal

Date Accounts Folio Debit (RM) Credit (RM)
80,000
Cash at bank

Capital

80,000

ACTIVITY 1

Please prepare analysis chart and record into the general journal for the
following transaction:

a) Yusof, a determined entrepreneur, started a restaurant business on 2
January 2020 by contributing RM10,000 in cash at bank to the business.

Example 2: Asset Account Only
(Purchase of Asset )
Transaction : Mohd Faez bought a computer for RM4,000 by cheque
Analysis (a) Asset( office equipment) increased by RM4,000

(b) Asset (cash at bank) decreased by RM4,000.

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Analysis Chart TYPE OF EFFECTS JOURNAL ENTRY
ACCOUNTS ACCOUNTS Debit (RM) Credit (RM)
INVOLVED Assets
4,000
Office equipment

Cash at bank Assets 4,000

Record into the General Journal

Date Accounts Folio Debit (RM) Credit (RM)
4,000
Office equipment

Cash at bank

4,000

ACTIVITY 2

Continuing and referring to previous activity, please prepare analysis chart and
record into the general journal for the following transaction:

To start a business operation, Yusof decides to buy furniture at RM4,000 by cash at bank
of RM4,000

Example 3: Asset Account and Liability Account

Transaction : Mohd Faez obtained a bank loan of RM20,000 from Bank Kaya
Analysis (a) Asset( cash at bank ) increased by RM20,000

(b) Liability (loan ) increases by RM20,000

Analysis Chart TYPE OF EFFECTS JOURNAL ENTRY
ACCOUNTS ACCOUNTS Debit (RM) Credit (RM)
INVOLVED Asset
20,000
Cash at bank

Loan Bank Kaya Liability 20,000

Record into the General Journal

Date Accounts Folio Debit (RM) Credit (RM)
20,000
Cash at bank

Loan Bank Kaya

20,000

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ACTIVITY 3

Continuing and referring to previous activity, please prepare analysis chart and
record into the general journal for the following transaction:

Yusof decides to take a loan from Bank Bantu Rakyat to expand his business. The loan
is for RM20,000 and was given a cheque.

Example 4: Asset Account and Drawings Account
Transaction : Mohd Faez withdrew cash at bank of RM1,000 for personal use
Analysis (a) Owner’s equity (capital) decreased by RM1,000

(b) Asset (cash at bank) decreased by RM1,000

Analysis Chart TYPE OF EFFECTS JOURNAL ENTRY
ACCOUNTS ACCOUNTS Debit (RM) Credit (RM)
INVOLVED Owner
1,000
Capital-drawing

Cash at bank Asset 1,000

Record into the General Journal

Date Accounts Folio Debit (RM) Credit (RM)
1,000
Capital-drawing

Cash at bank

1,000

ACTIVITY 4

Continuing and referring to previous activity, please prepare analysis chart and
record into the general journal for the following transaction:
Yusof withdrew cash at bank of RM100 for personal use

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Activity 5

Please prepare analysis , analysis chart and the entries in the ledger for the
following transaction:
a) Bought lorry for cash RM 5,000
b) Sold lorry for cash RM3,500
c) Started business with RM 15,000 cash in the bank.
d) Owner withdraws RM 500 cash from business for personal use.
e) A debtor, Ahmad , pay us by cash RM2,000

ACCOUNTS TYPE OF EFFECTS JOURNAL ENTRY
INVOLVED ACCOUNTS
Debit Credit

(RM) (RM)

a

b

c

d

e

Posted into general Journal JOURNAL ENTRY
Debit (RM) Credit (RM)
ACCOUNTS
INVOLVED

a

b

c

d

e

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Rules for Recording Revenues and Expenses

Revenues
Revenues are earned (or recognised) when a business sells goods/services to its
customers, which results in an inflow of assets such as cash or debtors.
In other words, revenues are earned when a firm has provided goods/services to its
customers.

Examples of revenue accounts

• Sales • Interest received • Commissions
• Rent received • Discounts received received

•

When effect to revenue accounts is increases than
the revenue account will be credit

Example: Business received RM8,000 for cash sale.
The revenue account will be increases, therefore

Sales account will be credit

Expenses

Expenses (including costs) incurred refer to the using up of assets in earning
revenues.
In other words, expenses incurred can be defined as the sacrifice made to produce
revenue.

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Examples of expenses accounts

• Postage • Carriage inwards • Legal Fees • Audit fees

• Purchases • Carriage Outwards • Wages o Interest expense

• Salaries • Rent expense • Insurance • Discount allowed

• Electricity • Electricity • Postage

Rule of expenses accounts

When effect to expenses accounts is increases than
the expenses account will be debit

Example: Business paid RM8,000 for wages. The
wages expenses will be increases, therefore wages

account will be debit.

Example 1 Asset Account and Revenue Account
Transaction: The business received cash of RM1,000 for rent

ACCOUNTS TYPE OF EFFECTS JOURNAL ENTRY
INVOLVED ACCOUNTS Debit (RM) Credit (RM)
Cash Assets
1,000

Rent Received Revenue 1,000

Posted into general ledger JOURNAL ENTRY
Debit (RM) Credit (RM)
ACCOUNTS
INVOLVED

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Example 2 Asset Account ,Liability Account or Expense Account

Transaction : Paid the insurance by cash RM1,000.

ACCOUNTS TYPE OF EFFECTS LEDGER ENTRY

INVOLVED ACCOUNTS Debit (RM) Credit (RM)

Insurance Expenses 1,000

Cash Assets 1,000

Posted into general Journal

ACCOUNTS JOURNAL ENTRY
INVOLVED Debit (RM) Credit (RM)

Example 3 Transactions that Involve Three Accounts
Transaction : Paid Bedah Supplier RM1,000 in cash and earned discount received of
RM50

Accounts Elements Effects Debit Credit
(RM) (RM)
Creditor – Bedah Supplier Liability 1,050
Cash Assets 1,000
Discount received Revenue 50

Posted into general Journal JOURNAL ENTRY
Debit (RM) Credit (RM)
ACCOUNTS
INVOLVED

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Activity 6

Please prepare analysis , analysis chart and the entries in the ledger for the following
transaction

1. Cash Sales of RM10,000
2. Sold goods to Sulaiman for RM2,500 on credit
3. Credit sales to debtor Ahmad RM7,000
4. Sulaiman returned defective goods worth RM200
5. Purchased good for RM5,000 by cheque
6. Purchased good for RM3,000 from Bedah Supplier on credit
7. Returned goods worth RM300 to Bedah Supplier because of different brand

name
8. Received cash of RM1,500 from Sulaiman and gave discount allowed of

RM80 to Sulaiman

REQUIRED:
Record into analysis chart

a) Record to general journal

Please use the following format .

Accounts Involved Type of Accounts Effect Journal Entry

Debit Credit

Cash Assets Cash
Sales Revenue
Sales

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Posted into general Journal JOURNAL ENTRY
Debit (RM) Credit (RM)
ACCOUNTS
INVOLVED 10,000
10,000
1. Cash
Sales

2.

3.

4.

5.

6.

7.

8.

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Chapter 3
The Double Entry System and General Ledger

REVIEW EVALUATION

QUESTION

1.

Complete the table below to show the effect of each transaction on the assets,

liabilities and capital of Ismail.

The first transaction has been completed as an example.

Transaction Assets Liabilities Capital

i. Purchased goods +RM130 +RM130 No effect

on credit RM130

ii. Goods sold on

credit for RM1,130

iii. Paid creditor

RM500 by cheque

iv. The owner

withdrew cash of

RM500 for personal

use

[ 9 marks ]

2. LIABILITIES CAPITAL
Fill in the blanks: 1,800 A
4,900 B
ASSETS C
12,500 D 12,500
28,000 6,300 16,450
16,800 11,650 19,200
19,600 16,900 39,750
17,200
E I G
F 15,400 34,400
55,000 28,500
H ( HINT : ASSET = LIABILITIES +CAPITAL )
36,100 J
119,500

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3
Fill in the missing amount in each of the following accounting equations.

ASSETS CAPITAL LIABILITIES REVENUES EXPENSES
(RM) (RM) (RM) (RM) (RM)
25,000 14,000 20,350 (a) 30,000

(b) 20,300 16,400 7,770 5,000

66,945 (c) 10,600 20,775 37,775

79,888 9,000 (d) 41,002 22,222

101,600 66.780 16,000 253,000 (e)

4

Identify whether the normal balance of each following account is debit or credit

Account Debit/Credit Account Debit/Credit

a) Office Supplies b) Furniture

c) Owner Equity d) Salaries
Payable

e) Salary Expense f) Cash in Hand

g) Creditor h) Debtor

i) Building j) Capital

( Hint: Asset=> Normal Account= Debit, Liabilities=> Normal Account= Credit , Equity
=> Normal Account= Credit, Expenses => Normal Account= Debit, Revenue =>
Normal Account= Credit)

5.
Record the following transactions by completing the table given
a. You decide to begin your restaurant business by depositing RM10,000 in a

business current account

b. You buy a RM50,000 shop lots, paying cash RM5,000 as deposit and using
business loan to handle the balance

c. Buy RM3,000 of furniture on account (credit )

d. Pay of the account payable

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Asset Liabilities Equities
Shop Capital
Q Cash Furniture Creditor Loan
Lot
a
b
c
d
Total

6.
Analyse the effects of the following transactions on the accounting equation. Adapt
the format as given. Example: Hj Amin started a business with RM15,000 cash in hand
(a) The business deposited RM14,000 of the cash into a bank account
(b) Received RM10,000 loan by cheque
(c) Purchased equipment worth RM2,000 by cheque
(d) Hj Amin withdrew RM500 from the bank for his personal use
(e) Bought a used van for RM10,000,partly paid by cheque RM4,000 and the

balance to be paid in September

Assets Liabiliti Equity
es
Cash Cash Equipm Van Loan Credit Capita
in at ent RM ors l

hand bank RM RM RM RM
RM RM
+15,000
Exampl +15,000
e
a
b
c
d
e

Total
Total

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