Double entry and source documents: practice questions

How to approach these questions

With any double entry question, first decide what happened in the business, before you write an account. Read the requirement slowly and separate the story from the instruction. "The business bought goods on credit from a supplier for RM800" tells you two things at once: which resources changed, and how.

Ask three questions in order. What did the business receive or give? Is each item an asset, a liability, capital, an expense or an income?

Has it increased or decreased? Only then turn the event into debits and credits. Rushing to "debit this, credit that" is where most avoidable marks are lost, because the entry is copied from a half-remembered rule instead of reasoned from the transaction.

Use a dependable rule. Assets and expenses increase on the debit side and decrease on the credit side. Capital, liabilities and income increase on the credit side and decrease on the debit side.

Take the credit purchase above. The business receives goods, so purchases (an expense) increases and is debited RM800. It now owes the supplier, so the supplier's account (a liability) increases and is credited RM800.

Every transaction touches at least two accounts, and total debits equal total credits. If your two sides are not equal, you have an error before you reach a trial balance. Check equality on each entry.

Source documents are the evidence, and examiners test which document triggers which entry. An invoice records a credit sale or credit purchase. A debit note and the resulting credit note deal with returns or overcharges.

A receipt or paying-in slip shows money received. A cheque counterfoil or bank statement shows money paid. A petty cash voucher supports small cash payments.

When a question gives you a document, name the book of prime entry it belongs in first, then the ledger posting. For example, a purchases invoice goes in the purchases day book. The total is then posted to the purchases account, and the individual supplier is credited in the purchases ledger.

Document, then book, then ledger. Getting this chain right earns method marks.

Lay out your work so the marker can follow it. For a ledger account, use a T-account with the date, the name of the corresponding account as the narrative, and the amount. The narrative names the other side of the entry, not the account you are writing in.

For a journal entry, write the debit line first, the credit line indented beneath, the figures in the correct money columns, and a short narrative underneath. Keep dates in order and never put two transactions on one line. Each correctly placed element is a separate chance to score.

Watch these traps. A sale on credit debits the customer, and a purchase on credit credits the supplier. Swapping them reverses the entry.

The owner's private dealings are not the business's. Drawings of RM200 reduce capital and are recorded as debit drawings, credit bank, never lumped in with expenses. Goods returned to a supplier reduce purchases and reduce what you owe, the opposite of the original purchase.

"Bought goods for RM800" paid at once credits cash or bank. "Bought goods on credit" credits the supplier. The wording is your only clue.

Check each entry the way an examiner would. Does the debit represent something received or an expense incurred, and the credit something given or a source of value? Do both sides add up to the same figure?

Does the account you used fit the item? Would the source document you named really exist for that event? Do this on every entry, not just at the end.

If you often reverse debits and credits, we can help. One of our teachers can work through a set of transactions with you and give you a way of reasoning that avoids guessing. Book a trial class