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The Accounting Cycle Lesson 4 – Double Entry System

The Accounting Cycle Lesson 4 – Double Entry System. How to record transaction using Double Entry System. About Revenues and Expenses. WHAT IS REVENUES. Revenue is generated from sales of goods or services rendered. It will increase / decrease capital.

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The Accounting Cycle Lesson 4 – Double Entry System

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  1. The Accounting Cycle Lesson 4 – Double Entry System

  2. How to record transaction using Double Entry System About Revenues and Expenses

  3. WHAT IS REVENUES • Revenue is generated from sales of goods or services rendered. It will increase / decrease capital. • Therefore, it should be in debit / creditentries. • There are two main sources of revenue 1. Trading revenues (such as sales) 2. Operating revenues (such as interest from bank deposit)

  4. Revenue received Date Detail Amount Detail Amount Date THE FORMAT OF A REVENUE ACCOUNT

  5. WHAT IS EXPENSES • Expenses is the cost incurred to generate revenue. It will increase / decrease capital. • Therefore, it should be in debit / creditentries. • There are two main types of expenses 1. Cost of sales (such as purchase) 2. Operating expenses (such as advertising expense )

  6. Expenses Paid Date Detail Amount Detail Amount Date THE FORMAT OF AN EXPENSE ACCOUNT

  7. How to record transaction using Double Entry System Purchase-related entries Example 4 Bought a total of $9,000 stocks for resale from HW Ltd on 2 Oct 20x9. Among which $5,000 was settled by cheque, and the reminding would be paid by cash on a later date.

  8. How to record transaction using Double Entry System Step 1: Open T accounts Purchases Bank HW Ltd (Trade Payables)

  9. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Purchases $ Detail Amount 20x9 Oct 2 Date 5,000 Bank 4,000 HW Ltd To record the total purchases made

  10. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Bank $ $ 20x9 Aug 13 20x9 Aug 14 Drawings 6,000 Capital 10,000 Oct 2 5,000 Purchases Previous entries Purchase made by cheque

  11. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made HW Ltd (Trade Payables) $ 20x9 Oct 2 5,000 Purchases Purchase without making payment

  12. How to record transaction using Double Entry System Purchase-related entries Example 5 Some of the stock purchased from HW Ltd was of poor quality and a total costing $1,000 was returned to the supplier on 3 Oct 20x9.

  13. How to record transaction using Double Entry System Step 1: Open T accounts HW Ltd (Trade Payables) Returns Outwards

  14. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made HW Ltd (Trade Payables) $ $ 20x9 Oct 3 20x9 Oct 2 1,000 Return outwards 5,000 Purchases Previous entries Stock with a cost of $1,000 were returned out to the supplier

  15. Detail Amount Date How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Return Outwards $ 20x9 Oct 3 HW Ltd (Trade Payables) 1,000 Stocks were returned to supplier

  16. How to record transaction using Double Entry System Sales-related entries Example 6 Sales amounted to $15,000 were made to Jolly Ltd on 12 Dec 20x9. Among which $10,000 were received by cash, while others would be settled on a later date.

  17. How to record transaction using Double Entry System Step 1: Open T accounts Sales Cash Jolly Ltd (Trade Receivables)

  18. Detail Amount Date How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Sales $ 20x9 Dec 12 10,000 Cash 5,000 Jolly Ltd To record the total sales made

  19. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Cash $ $ 20x9 Sept 1 20x9 Sept 15 Bank Loan 7,000 Equipment 8,000 10,000 Dec 12 Sales Previous entries Cash received from sales

  20. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made $ Detail Amount 20x9 Dec 12 Date Sales 5,000 Sales made without payment

  21. How to record transaction using Double Entry System Example 7 Jolly Ltd found some of the stocks broken upon receipt and returned a total of $800 (list price) back to the firm on 13 Dec 20x9. Sales-related entries

  22. How to record transaction using Double Entry System Step 1: Open T accounts Jolly Ltd (Trade Receivables) Return Inwards

  23. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made $ $ 800 20x9 Dec 12 20x9 Dec 13 Return Inwards Sales 5,000 Previous entries Stock with a list price of $800 were returned into the company

  24. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Return Inward $ 20x9 Dec 13 Jolly Ltd (Trade Receivables) 800 Stock were received from customer

  25. How to record transaction using Double Entry System Operating revenue entries Example 8 Received $50 interest from bank on the outstanding balance as at 31 Oct 20x9.

  26. How to record transaction using Double Entry System Step 1: Open T accounts Bank Interest Received Bank

  27. Detail Amount Date How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Bank Interest Received $ 20x9 Oct 31 Bank 50 Received interest from bank on deposit

  28. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Bank $ $ 20x9 Aug 13 20x9 Aug 14 Drawings 6,000 Capital 10,000 Oct 2 50 Oct 31 5,000 Purchases Bank interest received Previous entries Received interest from bank on deposit

  29. How to record transaction using Double Entry System Operating expense entries Example 9 Paid $500 on 1 Nov 20x9 by cheque for the advertisement made to promote the business on newspaper.

  30. How to record transaction using Double Entry System Step 1: Open T accounts Advertising Expenses Bank

  31. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Advertising expenses $ Detail Amount 20x9 Nov 1 Date 500 Bank Paid advertising expense

  32. How to record transaction using Double Entry System Step 2: Determine which side should the entries be made Bank $ $ 20x9 Aug 13 20x9 Aug 14 Drawings 6,000 Capital 10,000 50 Oct 31 Nov 1 Oct 2 500 5,000 Purchases Bank interest received Advertising expense Previous entries Paid advertising expenses

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