Chapter 4
DOUBLE ENTRY
SYSTEM OF
ACOUNTING
1
McQuaig
Bille
4-1
2–1
LEARNING OBJECTIVES
After you have completed this chapter. you will be
able to do the following:
Understand T accounts and Determine balances of T
accounts having entries recorded on both sides of
the account.
1
2
Present the fundamental accounting equation using the
T account form. and label the plus and minus sides.
Present the fundamental accounting equation using the
T account form. and label the debit and credit sides.
3
4
Record directly in T accounts a group of business
transactions involving changes in asset. liability.
owner’s equity. revenue. and expense accounts for
a service business.
2–2
The Steps in Recording and Posting the Effects of a Business
Transaction
The
company
enters into
business
transactions
as a result of
a
management
decision
The
company
transaction
is
evidenced
by a source
document
The source
document
served as a
basic for
preparing a
journal
entry
4-
The
journal
entry is
posted to
the acconts
in the
ledger
2–3
WHAT IS
ACCOUNT?
An account is a part of the accounting system
used to classify and summarize the increases.
decreases. and balances of each asset. liability.
owners' equity. revenue. and expense items.
4-
2–4
Assets = Liabilities + Equity
Assets = Liabilities + Capital ‒ Drawing + Revenue ‒ Expenses
TYPES OF ACCOUNTS
Account Tangible fixed asset
Account Cash in banks
Account Cash on hand
Account Trade receivables
Asset accounts
Account Raw materials
Liabilities accounts Account Merchandise goods
Equities accounts
Revenues accounts
Expenses accounts
4-
2–5
Assets = Liabilities + Equity
Assets = Liabilities + Capital ‒ Drawing + Revenue ‒ Expenses
TYPES OF ACCOUNTS
Account Taxes and other payable to
State budget
Account Trade Payables
Liabilities accounts
Account Payable to employees
Account Borrowings and finance
lease liabilities
Account Other payables
4-
2–6
Assets = Liabilities + Equity
Assets = Liabilities + Capital ‒ Drawing + Revenue ‒ Expenses
TYPES OF ACCOUNTS
Account Invesment and development funds
Account Owner’s equity
Capital accounts
Account Undistributed profit after tax
Account Other equity funds
4-
2–7
ACCOUNT XXX
Date
Explanation
NO. 101
Ref.
4-
Debit
Credit Balance
2–8
ACCOUNT CASH ON HAND
Date
Explanation
NO. 101
Ref.
4-
Debit
Credit Balance
2–9
T- account
The standard T-account
structure starts with the
heading including the
account name. This section
usually forms the top of
the T. The left column is
always the debit column
while the right column is
always the credit column
4-
2–10
4-
2–11
Debit and Credit
 What does debit mean?
– Forget what you know
about debit cards!
 What does credit mean?
– Forget what you know
about credit cards!
 Credit means “right.”
 Debit means “left.”
 Debit is abbreviated
“DR.”
 Credit is abbreviated
“CR.”
2–12
The T Account Form
Title
Debit
The left side of the
account is called
the debit side.
The T account
has a title (such
as Cash).
Credit
The right side of
the account is
called the credit
side.
2–13
The + or – changes
with the type of
account.
4-
2–14
The T Account Assets
Account Assets
+
Assets
(Cash. for
example)
increase on
the left side.
–
Assets. Cash
in this
example.
decrease on
the right side.
4 –15
1. Owner invested VND20.000 cash

2. Issued note payable for VND12.000 cash.


3. Purchased office equipment for VND11.000 cash.

4. Received VND15.000 cash for services performed.
5. Paid VND1.000 cash for rent office building.


6. Paid VND600 cash drawings to owner.

7. Paid VND5.700 cash for salaries.
Dr
Cash
15.000
12.000
11.000
1.000
600
5.700
35.000
4.700
30.300
20.000
Balance
Cr
4 –16
The T Account Liabilities
Account Liabilites
–
Liabililies
(Trade
Payables. for
example)
decrease on
the left side.
+
Liabililies
(Trade
Payables in
this example.
increase on the
right side.
4 –17

1. Purchased office equipment for VND11.000 on credit

2. Issued note payable for VND12.000 cash.

3. Prepaid for office equipment on VND13.000 cash.
4. Purchased VND15.000 raw materials on credit.
5. Purchased office equipment VND13.000 from prepaid mount

Dr
Trade Payables
12.000
13.000
Cr
11.000
15.000
13.000
25.000
39.000
14.000
Balance
4 –18
The T Account Equity
Account Equity
–
Liabililies
(Trade
Payables. for
example)
decrease on
the left side.
+
Liabililies
(Trade
Payables in
this example.
increase on the
right side.
4 –19
The T Account Expenses
Account Expenses
+
Expenses
(Selling
expenses). for
example)
increase on the
left side.
–
Expenses
(Selling
expenses in
this example.
decrease on
the right side.
4 –20
The T Account Revenue
Account Revenue
–
Revenue for
example)
decrease on
the left side.
+
Revenue in
this example.
increase on the
right side.
4 –21
How to Determine Balances of
T Accounts
Step 1. Add each side separately and record the
totals (called footing).
Step 2. Subtract the large footing number form
the small footing number.
Step 3. Record the balance on the large footing
side.
4-
2–22
PRACTICE EXERCISE 1 SOLUTION
4-
2–23
Checking
4-
2–24
Restated Fundamental
Accounting Equation
Assets increase on the __________
left
side.
Liabilities increase on the __________
right
side.
Owner’s equity increases on the __________
right
side.
Revenue increases on the __________
side.
right
Expenses increase on the __________
side.
left
4-
2–25
PRACTICE EXERCISE 4
Using the fundamental accounting equation in T account form. label each side
with plus and minus.
PRACTICE EXERCISE 4 SOLUTION
4-
Steps in Analyzing a Transaction
Step 1. Decide which accounts are involved.
Step 2. Classify the accounts involved (asset.
liability. capital. revenue. expense).
Step 3. Decide if the accounts involved are
increased or decreased.
Step 4. Write the transaction as a debit to one
account (or accounts) and a credit to
another account (or accounts).
Step 5. Check to see if the equation is in
balance after the transaction has been
recorded.
4-
Analyzing Transaction (a)
Transaction (a): BaoMinh – Conner companr’s owner,
deposited VND 900.000.000 in a bank account in the name
of the business.
Step 1. Decide which accounts are involved.
The two accounts involved are Cash and J.
Conner. Capital.
Step 2. Classify the accounts involved.
Cash is an asset and J. Conner. Capital. is an
owner’s equity account.
4-
Step 3. Decide if the accounts involved are
increased or decreased.
Cash is being deposited in the bank account. an
increase to Cash. The owner has invested that cash in
the business and has increased J. Conner. Capital.
Step 4. Write the transaction as a debit to one
account (or accounts) and a credit to
another account (or accounts).
Since Cash is an asset and is increased. so Cash is
debited. J. Conner. Capital is an owner’s equity
account and increased by a credit.
4-
Step 5. Check to see if the equation is in balance.
There is at least one account debited and at least
one account credited. and the total amount(s)
debited equal the total amount(s) credited . You
now have a debit equal to a credit. VND
900.000.000 debit to Cash and a VND
900.000.000 credit to J. Conner. Capital.
4-
2–30
Resulting Transaction (a)
in T Account Form
Unit: VND 1.000
4-
2–31
Transaction (b): Conner’s Whitewater Adventures
bought equipment. paying cash. VND 38.000.000.
211 – Fix asset
38.000
111 - Cash
38.000
4-
2–32
Transaction (c): Conner’s bought equipment on account
from Signal Products. VND 43.320.000
211 – Fix asset
43.320
331 – Trade payable
43.320
4-
Transaction (d): Conner’s paid Signal Products. a
creditor. VND 20.000.000 by cash.
4-
Transaction (e): Conner invests her personal computer
in the business with fair market value of VND
50.200.000.
4-
111 – Cash
331 – Trade payable
(a) 90.000 38.000 (b) (d) 20.000 43.320 (c)
20.000 (d)
0
58.000
20.000 43.320
23.320
32.000
411 – Capital
211 – Fix asset
(b) 38.000
(c) 43.320
(e) 50.200
131.520
131.520
90.000 (a)
50.200 (e)
0 140.200
0
140.200
Summary―
Transactions (a) – (e)
Let’s pause to see if the debits are equal to the credits
by listing the balances of the accounts.
Account name
Cash on hand
Tangible fix asset
Accounts with
Normal balances
on Debit side
(Asset, expenses)
Accounts with
Normal balances
on Credit side
(Liabilities, equity,
revenue)
32.000
131.520
Trade payable
Capital
23.320
140.200
163.520
163.520
Equal
Transaction (f): Conner’s Whitewater Adventures
sold rafting tours for cash. VND 80.000.000.
4-
2–38
Transaction (g): Conner’s paid rent for the
month. VND 12.250.000
4-
2–39
Transaction (h): Conner’s bought computer paper, ink
cartridges, invoice pads. pens and pencils, folders,
filing cabinets, and 10-key calculators on account,
VND 675.000.
4-
2–40
Transaction (i): Conner’s bought a three-month
liability insurance policy. VND17. 750.000
4-
2–41
Transaction (j): Conner’s received a bill for newspaper
advertisement from the Times. VND 620.000
4-
Transaction (k): Conner’s signs a contract with
Crystal River Lodge to provide rafting adventures for
guests. Conner’s provides 27 one-day rafting tours and
bills Crystal River Lodge for VND 156.750.000
4-
Transaction (l): Conner’s pays on account to Signal
Products. VND 30.000.000
4-
Transaction (m): Conner’s received and paid Solar
Power. Inc. for the electric bill. VND 2.225.000
4-
Transaction (n): Conner’s Whitewater Adventures
paid on account to the Times. VND 620.000
4-
Transaction (p): Conner’s bought additional
equipment from Signal Products. VND 53.780.000
paying VND 33.780.000 in cash and placing the
balance on account.
4-
Transaction (q): Conner’s received VND 22.500.000
cash from Crystal River Lodge to apply against the
amount billed in transaction (k).
4-
Transaction (r): Conner’s sold tours for cash. VND
88.570.000
4-
Summary of Transactions
1. On October 1, BaoMinh comp. invests VND10.000.000 cash in an advertising
company called BaoMinh Advertising.
2. On October 1, BaoMinh purchases office equipment costing VND 5.000.000 by
signing a 3-month, 12%, VND 5.000.000 note payable
3. On October 2, BaoMinh receives a VND 12.000.000 cash advance from Ms. Hoa,
a client, for advertising services that are expected to be completed by December 31
4. On October 3, BaoMinh pays office rent for October in cash, VND 9.000.000
5. On October 4, BaoMinh pays VND 6.000.000 by cash on hand for a one-year
insurance policy that will expire next year on September 30
6. On October 5, BaoMinh purchases materials on account from HoaLong company
for VND 25.500.000
7. On October 9, BaoMinh hires four employees to begin work on October 15. Each
employee is to receive a weekly salary of VND 1.500.000 for a 5-day work week,
payable every 2 weeks— first payment made on October 26.
8. On October 20, Mr. Minh withdraws VND 50.000.000 cash for personal use
9. On October 26, BaoMinh owes employee salaries of VND 140.000.000 and pays
them in cash (see October 9 event)
10. On October 31, BaoMinh receives VND100.000.000 cash in banks from Coca
Company for advertising services performed in October
4 –51
Determine balances
of T accounts
having entries
recorded on both
sides of the
accounts.
4-
2–52
The T-Account Form
Account Cash
500.000.000
(1/10) 10.000.000
(2/10)
Balances
12.000.000
22.000.000
317.000.000
9.000.000 (3/10)
6.000.000 (4/10)
50.000.000 (20/10)
140.000.000 (26/10)
205.000.000
Footings
2–53
4-
2–54
PRACTICE EXERCISE 4
Record the following transactions directly into the appropriate T
accounts.
a. J. Molson deposited VND90.000 in the name of the business.
b. Bought equipment for cash. VND38.000.
c. Bought equipment on account. VND4.320.
d. Paid VND2.00 on account.
e. J. Molson invested his personal equipment. valued at
VND5.200 in the business.
f. J. Molson withdrew VND1.200 from the business for
personal use.
4-
2–55
PRACTICE EXERCISE 4 SOLUTION
4-
2–56
2–5
THE END
2–57