1. THE DOUBLE ENTRY BOOKKEEPING (SISTEM CATATAN BERGU)
Chapter 3
THE DOUBLE ENTRY BOOKKEEPING
(SISTEM CATATAN BERGU)

2. Study Objectives
Explain what an account is and how it helps in the recording process.
Define debits and credits and explain their use in recording business transactions.
Identify the basic steps in the recording process.
1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements?
Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases).
Forward-looking Information
Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image).
Timeliness (no real time financial information)

3. DOUBLE ENTRY ACCOUNTING
Accounting is defined as :
Art of recording, classifying and summarizing
In a significant manner
And in terms of money
Transactions and events
Which are of a financial character
And interpreting the results thereof.

4. The Recording Process The Account Steps in the Recording Process
The Recording Process Illustrated
The Trial Balance
Debits and credits
Expansion of basic equation
Journal
Ledger
Summary illustration of journalizing and posting
Limitations of a trial balance
Locating errors
Use of dollar signs
Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation.
Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt.
Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets.
Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees.
Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss:
difference between the actual return and the expected return on plan assets and,
amortization of the unrecognized net gain or loss from previous periods

5. Double entry book keeping
Art enables one to attain objectives
Recording of transaction in orderly manner
Classifying refers to grouping of accounts
Summarizing thru Trial Balance, Trading, Profit and Loss Account and Balance Sheet.
Terms of money : common language that is through the help of money example :

6. Double entry
Starts with recording and ends with presentation of financial information.
Each transaction or event has two aspects or sides : DEBIT and CREDIT
Accounting trail : it’s a sequence of activities in an accounting process

7. An Account can be illustrated in a T-Account form.
The Account
Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Debit = “Left”
Credit = “Right”
Account
An Account can be illustrated in a T-Account form.
LO 1 Explain what an account is and how it helps in the recording process.

8. THE ACCOUNTS FOR DOUBLE ENTRY
The left hand side is called debit side; the right side is called the credit side.(T- account)
Eg. If you paid Rs.10 by cheque for kettle, so debit the kettle account and credit bank account

9. Debits and Credits Double-entry accounting system
Each transaction must affect two or more accounts to keep the basic accounting equation in balance.
Recording done by debiting at least one account and crediting another.
DEBITS must equal CREDITS.
LO 2 Define debits and credits and explain their use in recording business transactions.

10. In terms of asset, liabilities, and capital
1. To increase an asset we make debit entry.
2. To decrease an asset we make a credit entry
3. To increase a liability/capital account we make a credit entry
4. To decrease a liability/capital account we make a debit entry.

11. Debits and Credits
If Debits are greater than Credits, the account will have a debit balance.
Transaction #1
$10,000
$3,000
Transaction #2
Transaction #3
8,000
15,000
Balance
LO 2 Define debits and credits and explain their use in recording business transactions.

12. Debits and Credits
If Debits are smaller than Credits, the account will have a credit balance.
Transaction #1
$10,000
$3,000
Transaction #2
8,000
Transaction #3
Balance
1,000

13. Expansion of the Basic Equation
Relationship among the assets, liabilities and owners’ equity of a business:
Basic Equation
Illustration 2-11
Assets =
Liabilities +
Owners’ Equity
Expanded Basic Equation
The equation must be in balance after every transaction. For every Debit there must be a Credit.

14. Debits and Credits Summary
Review Question
Debits:
increase both assets and liabilities.
decrease both assets and liabilities.
increase assets and decrease liabilities.
decrease assets and increase liabilities.
LO 2 Define debits and credits and explain their use in recording business transactions.

15. Assets and Liabilities
Assets - Debits should exceed credits.
Liabilities – Credits should exceed debits.
The normal balance is on the increase side.
LO 2 Define debits and credits and explain their use in recording business transactions.

16. Owners’ Equity
Owner’s investments and revenues increase owner’s equity (credit).
Owner’s drawings and expenses decrease owner’s equity (debit).
LO 2 Define debits and credits and explain their use in recording business transactions.

17. Debits and Credits Summary
Review Question
Accounts that normally have debit balances are:
assets, expenses, and revenues.
assets, expenses, and owner’s capital.
assets, liabilities, and owner’s drawings.
assets, owner’s drawings, and expenses.
LO 2 Define debits and credits and explain their use in recording business transactions.

18. Eg 1…..
The owner starts the business with Rs.10,000 in cash on 1 August 2008.
The effect…
Effect
Action
1. Increases the asset of cash
Debit the cash account
2. Increases the capital
Credit the capital account

19. Answer…

20. Eg 2….. A van is bought for Rs.4,500 cash on 2 August 2008.
The effect…
Effect
Action
1. Increases the asset of van
Debit the van account
2. Decreases the asset of cash
Credit the cash account

21. Answer…

22. Eg 3…..
Fixtures (e.g. shelves) are bought on credit from shop Fitters for Rs.1,250 on 3 August 2008.
The effect…
Effect
Action
1. Increases the asset of fixtures
Debit the fixtures account
2. Increases the liability of Shop Fitters.
Credit the Shop Fitters account

23. Answer…

24. Eg 4…..
Paid the amount owing to Shop Fitters in cash on 17 August 2008.
The effect…
Effect
Action
1. Decreases the liability of Shop Fitters
Debit the Shop Fixtures account
2. Decreases the asset of cash.
Credit the cash account

25. Answer…

26. Complete the following table
REVIEW QUESTIONS
Complete the following table
Account to be debited
Account to be credited
a.Bought office machinery on credit from D Isaacs Ltd.
b. The proprietor paid a creditor, C Jones, from his private funds.
c. A debtor, N Fox, paid us in cash.
d. Repaid part of loan from P Exeter by cheque.
e. Returned some of office machinery to D
Isaacs Ltd.
f. A debtor, N Lyn, pays us by cheque.
g. Bought van by cash.

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