C hapter 3: The double entry system:

Assets, liabilities and capital

Contents of chapter
This chapter explains what the double entry system is. It explains the notion of ‘debits’ and ‘credits’. It shows
how entries are made in accounts.

Notes for teachers

1 All students must memorise the double entry rules on pages 18-19. Ask if they understand them, then go
around the class asking them the rules. Make certain that they have closed their textbooks first.

Students should learn how to draw the layout of a T-account and make appropriate entries for each
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transaction.

One useful hint for deciding if a transaction is a debit or a credit in an account is when a transaction
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involves either cash or bank. It should be easy to decide on which side of the cash account or the bank
account it should be entered. When there is a debit entry in the cash/bank account, then obviously the
entry in the other account should be a credit, and vice versa.

It is useful here to show that cash banked is:

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Debit : Bank account
Credit : Cash account
and that cash taken out of the bank is:
Debit : Cash account
Credit : Bank account
This will make it easier to understand ‘contra’ items when the cash book is introduced in Chapter 16.

Students should understand that in a real business, each account would be on a separate page. If you have
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any old ledgers from a real business, you could show them to the students. This can arouse their interest
in accounting.

As with Chapter 2, practice is essential here.

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 Answers to MCQs and exercises
3.1 D 3.2 B 3.3 D 3.4 A 3.5 A

3.6
(a) Dr Office machinery, Cr K Chan Ltd (e) Dr K Chan Ltd, Cr Office machinery
(b) Dr M Fan, Cr Capital (f) Dr Bank, Cr W Kin
(c) Dr Cash, Cr F Hang (g) Dr Van, Cr Cash
(d) Dr Loan from L Hoi, Cr Bank

3.7X
(a) Dr Lorry, Cr Cash (f) Dr Cash, Cr C Wing
(b) Dr T Lui, Cr Bank (g) Dr Bank, Cr W Po
(c) Dr Loan from P Mok, Cr Cash (h) Dr Bank, Cr Capital
(d) Dr Cash, Cr Lorry (i) Dr Cash, Cr Loan from L Lo
(e) Dr Office machinery, Cr Ultra Ltd (j) Dr S Chun, Cr Cash

3.8
Cash Lorry
$ $ $
(1) Capital 1,000 (14) Office machinery 60 (3) Success Cars 698
(31) Success Cars 698
Success Cars
Capital $ $
$ (31) Cash 698 (3) Lorry 698
(1) Cash 1,000
Office Machinery
$
(14) Cash 60

3.9
Bank Planers Ltd
$ $ $ $
(1) Capital 2,500 (2) Office furniture 150 (15) Bank 750 (3) Machinery 750
(5) Van 600
(15) Planers Ltd 750 Van
(31) Machinery 280
$
(5) Bank 600
Capital
$ L Sam
(1) Bank 2,500
$ $
(8) Office furniture 60 (23) Cash 60
Office Furniture
$ $ Cash
(2) Bank 150 (8) L Sam 60
$
(23) L Sam 60
Machinery
$
(3) Planers Ltd 750
(31) Bank 280

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3.10
Bank Loan from H Chen
$ $ $
(1) Capital 10,000 (6) Van 3,000 (8) Bank 1,000
(8) Loan from (28) Promotion
H Chen 1,000 Garages Ltd 2,000 Cash
(12) Cash 350
$ $
(22) L Jim 1,000
(11) Capital 500 (12) Bank 350
(26) L Jim 1,800
(21) Loan from T Hung 400 (17) Office equipment 50
(30) L Jim 200
Capital
$ L Jim
(1) Bank 10,000
$ $
(11) Cash 500
(19) Van 3,000 (22) Bank 1,000
(26) Bank 1,800
Office Equipment (30) Cash 200
$ $
(3) Viva Machinery 700 (15) Viva Machinery 200 Loan from T Hung
(17) Cash 50
$
(21) Cash 400
Viva Machinery Ltd
$ $ Promotion Garages Ltd
(15) Office equipment 200 (3) Office equipment 700
$ $
(28) Bank 2,000 (23) Van 3,600
Van
$ $
(6) Bank 3,000 (19) L Jim 3,000
(23) Promotion
Garages Ltd 3,600

3.11X
Cash Sun Furniture
20X5 $ 20X5 $ 20X5 $ 20X5 $
Jun 1 Capital 30,000 Jun 16 Office furniture 3,000 Jun 13 Office furniture 200 Jun 2 Office furniture 4,000
" 6 Capital 5,000 " 19 Fixtures 2,000 " 17 Bank 2,000
" 22 Loan from " 25 Bank 15,000 " 27 Cash 1,800
D Hu 10,000 " 27 Sun Furniture 1,800
Photocopy Machine
Bank 20X5 $
20X5 $ 20X5 $ Jun 10 Bank 10,000
Jun 1 Capital 40,000 Jun 10 Photocopy
" 25 Cash 15,000 machine 10,000 Fixtures
" 17 Sun Furniture 2,000
20X5 $
Jun 19 Cash 2,000
Capital
20X5 $ Loan from D Hu
Jun 1 Cash 30,000
20X5 $
" 1 Bank 40,000
Jun 22 Cash 10,000
" 6 Cash 5,000
" 30 Digital camera 3,000
Digital Camera
Office Furniture 20X5 $
Jun 30 Capital 3,000
20X5 $ 20X5 $
Jun 2 Sun Furniture 4,000 Jun 13 Sun Furniture 200
" 16 Cash 3,000

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 3.12X
Cash Bank Loan
20X6 $ 20X6 $ 20X6 $
Mar 1 Capital 12,000 Mar 17 Office furniture 4,000 Mar 6 Bank 50,000
" 25 Bank 5,000 " 20 Super Machines6,000
" 27 Van 6,000 Bank
20X6 $ 20X6 $
Van Mar 6 Bank loan 50,000 Mar 15 Super
20X6 $ 20X6 $ Machines 10,000
Mar 1 Capital 6,000 Mar 27 Cash 6,000 " 19 Universal Ltd 10,000
" 25 Cash 5,000
Capital " 30 Universal Ltd 15,000
20X6 $
Mar 1 Cash 12,000 Computer
" 1 Van 6,000 20X6 $
Mar 8 Universal Ltd 25,000
Machinery
20X6 $ 20X6 $ Universal Ltd
Mar 3 Super Mar 23 Super 20X6 $ 20X6 $
Machines 16,000 Machines 700 Mar 19 Bank 10,000 Mar 8 Computer 25,000
" 30 Bank 15,000
Super Machines
20X6 $ 20X6 $ Office Furniture
Mar 15 Bank 10,000 Mar 3 Machinery 16,000 20X6 $
" 20 Cash 6,000 Mar 17 Cash 4,000
" 23 Machinery 700