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Introduction

Dr. Grace Il Joo Kang


gracekangij@unisim.edu.sg
EDUCATION
Ph.D. in Accounting, Korea University Business School
Master of Science in Accounting, Korea University Business School
B.A. in Economics (Double major in English Literature), Ewha Womans University
WORK EXPERIENCE
Equity Analyst, Shinyoung Securities Research Center, Seoul
PROFESSIONAL QUALIFICATIONS
U.S. CPA CANDIDATE (MAINE): passed all four sections

ACC201e

Financial Accounting
July Semester 2015
T06

Topic Coverage
Introduction to Financial Accounting
Recording Business Transactions
Accrual Accounting
Internal Control and Cash
Accounts Receivables and Notes Receivables
Inventory and Merchandising Operations
Fixed Assets, Intangible Assets and Financial Asset Investments
Current and Long Term Liabilities
Shareholders Equity
Financial Statement Presentation and Analysis
Statement of Cash Flows
3

Course Delivery

Course Material
* E-Course guide
* Recommended Text

The course will follow closely Chapters 1-12 of the text


FINANCIAL ACCOUNTING

Course Presentation

* The learning process for this course is structured along the following :
- Self-study through online learning
- 6 seminars
- Working on quizzes and the Group Based Assignment.

Seminar flow
Course Material
Seminar 1
Seminar 2

Introduction to Financial Accounting


Recording Business Transaction
Accrual Accounting
Internal Control and Cash

Chapters
in text
1&
2
3&
5

Seminar 3

Accounts Receivables and Notes Receivables


Inventory and Merchandising Operations

5, 8 &
6

Seminar 4

Fixed Assets, Intangible and Financial Assets


Current and Long Term Liabilities

7, 8 &
9

Seminar 5

Shareholders Equity
Financial Statement Presentation and Analysis

4, 10 &
12

Seminar 6

Statement of Cash Flows

11

Course Assessment
Assessment

Description

Weight
Allocation

Assignment 1 3 Online quizzes

20%

Assignment 2 Group based case assignment

30 %

Examination

50%

TOTAL

Computations and short essay-type questions

100%

Examination

You will be tested on all the topics covered in the


seminars as well as the eLearning materials.

Students are advised to gain understanding of the


subject progressively so that there is no need to cramp
everything at the last minutes.

This includes putting effort in doing the group based


assignment and participation in the discussion.

There will be 6 compulsory questions, 4 in section A


and 2 in section B so students have to cover every topics
in the preparation for the examination.

Communication

All enquiries relating to the course to be posted on the


general forum

Students to engage in topical discussion forum

Email (Relating to the course but confidential matter)

TMA01 - GBA Case study approaches


This is a Tutor Marked Assignment and not Tutor

Assisted Assignment.
All members in the group must attempt the

assignment to obtain maximum benefits for


themselves.
Tutor will not go through the case study in class

nor entertainment questions leading to answers


required.
Tutors will only clarify questions if necessary.
9

Group Based Assignments approaches


NOTE:
This a group based assignment.
Students are to form group of not more than 3 members.
Please form your group immediately and submit names of group
to me after lunch break.

10

Free rider
Student in a group who contributes little or nothing to the
group assignment is a free-rider.
There are rules that define acceptable behaviour amongst
members of a group.
Suggest that the team define these at the beginning of the
Case Study project meeting to provide a means of clarifying
and enforcing these norms.

11

Presentation of Case report


Cover page
Proper headings and titles
Use of comma, separator, currency units, etc (Eg.
$1,000,000 and not 1000000 )
Proper format and indentation
Referencing of sources of information

12

Submission Report
Report must be submitted in Word document format.
Report must have proper cover page with appropriate headings
and titles for each questions answered.
Excel file, html and jpeg files are not to be inserted into the
report.
Report to be in either Black or Blue font. All the other
colours are reserved for tutors to make comments.
Proper referencing to be observed in the report.
Warnings:
Up to 10% of the total marks will be deducted for the above
violations.
13

Turn-it-in
Tool for checking Collusion/Plagiarism
a) All assignments and coursework by students have to
be submitted to Turnitin for plagiarism detection. No
hardcopy submission will be accepted. Tutors will not
mark your work if it is not submit via Turnitin
b) Referencing acknowledgement of works or ideas
taken from internet, textbooks, articles, or any
sources. Please use the referencing appropriately.
Please refer to the Student Handbook for further detail.

14

Financial Accounting

SEMINAR 1
Chapter 1
Introduction to Financial Accounting
Chapter 2
Recording Business Transaction

15

Learning Objectives
1. Describe the role of accounting in business and the users
of financial accounting information
2.

Explain key accounting concepts, assumptions and


principles behind financial reporting as prescribed by the
Conceptual Framework

3. Use the accounting equation to describe a companys


financial position and financial performance
4. Define the elements of the financial statements
5. Identify the four financial statements and evaluate a
companys operating performance and financial position
for decision-making
16

Learning Objectives (Cont)


6. Describe an account
7. Analyse business transactions
8. Explain the general rules of debit and credit
9. Identify the flow of data in the accounting cycle
10. Record business transactions in a journal
11. Use a trial balance to prepare financial statements

17

Why study Financial Accounting?


Why study accounting when I am not going to be an
accountant?
To be good at your business, you have to
know the numbers cold
- Harold Geneen, the former Chairman of IT&T
Reality of business - success of any business is
reflected by numbers

18

Scenario
Preparation before coming to seminar
From the Annual Report of any companies listed on the Stock
Exchange of Singapore, name the titles of the financial statements
that provide specific information about the economic resources,
claims to economic resources, and changes in resources and
claims.

Answer
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Financial Position
Statement of Cash Flows
19

Scenario (Cont)
Case scenario Prepare before coming to seminar (Year 20X1)
Sally, a former teacher with MOE, quitted her job and started Learning
Journey, an educational camp for children ages 5 to 12. At the end of the
first year of operations, she asked for your help in preparing the relevant
financial information for her. As she had desired to open such camps
throughout the whole island, she decided to incorporate her business
venture as EduCamp Pte Ltd. She put in some of her own saving as well
as sold shares to close friends and relatives. The amount of initial capital
raised was $24,000. The company also took a bank loan of $24,000. The
company also purchased a minibus for $22,400 cash to transport the
children from the centre to the camp site. The company also purchased
computer system costing $4,000. Revenue earned for the year was
$160,000 and $32,000 remained outstanding from customers.

20

Scenario (Cont)
The rental of the campsite for the year totaled $12,800. Other expenses
were insurance 12,800, salary $48,000, and office administration
$16,000. The company still owed the bank $1,280 interest at the end of
the year. The company pay a cash dividends of $4,800 during the year.
The cash position at the end of the year was $55,200.

How is the business doing? Did Sally made a wise choice in


setting up the business?
To answer these questions, we prepare the relevant financial
statements to help us better understand the performance of the
business.

21

Role of financial reporting


Financial statements are the business documents
that companies use to report the results of their
activities to various user groups, which can
include managers, investors, creditors, and
regulatory agencies.
In turn, these parties use the reported information
to make a variety of decisions, such as whether to
invest in or loan money to the company

22

Considerations
Who are the users of the financial report?

Those who have an entitlement to receive the report and to whom


the directors have a responsibility, and
Those who have no such entitlement but nonetheless have an
interest in it.

What information do they need?

Management must assess users information needs and what is


material to each user group

How should that information be provided?

Financial report should not be purely focused on financial


information for investors but a wider information set that the users
need in order to make decisions about the company, such as
business model and strategy information and sustainability
reporting.
23

Users of Accounting Information

Investors
Suppliers and
trade
creditors

Employees

Creditors

Customers

Government
and its
agencies

Public

24

The Language of Business

Measures business activities


Processes data into reports
Communicates results to
financial statement users
25

Types of Accounting
Financial

Managerial

Provides information

Provides information

for external users

Investors
Creditors
Government
The public

for internal users


managers
Includes:

Budgets
Forecasts

26

Forms of Business Organization

Owner(s)

Proprietorship

Partnership

Corporation

Proprietor One
owner

Partners Two or
more owners

Shareholders
generally many
owners

General partners
are personally
liable; limited
partners are not

Shareholders are
NOT personally
liable

Personal liability Proprietor is


of owner(s) for
personally liable
business debts

Which is Sallys business model?

27

International Financial Standards


Historically, different countries use their own

accounting standards.

Difficult for investors to compare companies that operate


in different countries

The IASB has developed international standards

(IFRS)

In the past, U.S. considered its GAAP to be the strongest


set of standards

In November 2008, the SEC announced it will

require all U.S. public companies to adopt IFRS

28

Overview of IFRS Conceptual Framework


Objective

Qualitative
Characteristics

Provide information to various users that is useful for their


economic decision making

1. Relevance
2. Faithfully
Representation

Constraints

Benefits versus Costs

Assumptions

Elements

Enhancing qualitative characteristics :


Comparability, Verifiability, Timely, Understandability

Accrual Accounting

Assets

Liabilities

Going Concern

Equity

Income

Expenses29

Qualitative Characteristics
Qualitative Characteristics (Relevance and Faithfully

Representation), they make the information provided in Financial


statement users.
Relevance

Information makes a difference to the decision maker, investor.


It is useful to predict future outcomes.
If it is material, it should be disclosed separately.
Faithfully Representation
1.
2.
3.
4.

1. Complete: Including all necessary information for the users to


understand the economic phenomenon.
2. Neutrality: unbiased
3. Free from error
30

Enhancing Qualitative Characteristics


Comparability

Preparation should remain comparable over time.


Compare A firms performance to another.

Verifiability

2 different independent parties come to a consensus in the same


economic phenomenon.
Understandability

Assuming that the FS users have the knowledge of accounting.


Accounting information should be presented clearly.

31

Constraints
Benefits versus Costs

Cost of data processing, proving the information to the users.


Higher cost lower return
Therefore, benefit should outweigh the costs incurred.

32

Assumptions

Accrual Accounting
Transactions and other events are
recognized when they occur

Going- concern assumption


Entity will continue to exist indefinitely
33

Accounting Equation Elements

Assets
Liabilities

Economic resources
Produce future benefits
Present obligations
Result in an outflow of economic benefits

Equity

Represents shareholders residual claim to the entitys


assets

Income

Increases in economic benefits during an accounting


period

Expenses

Decreases in economic benefits during an accounting


period

34

The accounting equation


Assets = Liabilities + Equity

Liabilities
Assets
$1,000

$700
Equity
$300

35

The accounting equation (Cont)


Total Revenue and Gain Total Expenses
and Losses = Net Income (or Loss)
Total
Revenue
and Gains

$1,000

Total
Expenses
and Losses

Net
Income (or
Loss)

$800

$200

36

The Components of Retained Earnings


Revenues for
the period
minus

Expenses for
the period
equals
Beginning
Balance of
Retained
Earnings

Plus or
minus
Net Income (or
Net Loss) for
the period

minus

Dividends for
the period

equals

Ending Balance
of Retained
Earnings

37

The Financial Statements

Income
Statement

Statement of
Changes in
Equity

Statement of
Cash Flows

Balance Sheet

38

The Income Statement


Part of Statement of Comprehensive Income
Reports two main categories

Revenues and gains


Expenses and losses
Shows the bottom line
Net income or net loss for the period

39

Income Statement
ABC Pte. Ltd.
Income Statement
For year ended 31 December 20X9
Revenue
Cost of sales
Gross profit
Other operating income
Distributable costs
Administrative expenses
Other expenses
Profit before tax
Income tax expense
Profit for the year

$'000
510
(300)
210
20
(5)
(13)
(12)
200
(3)
197
40

Statement of Changes in Equity

ABC Pte. Ltd.


Statement of Changes in Equity
For the year ending December 31, 20X9
Shareholder equity as of December 31, 20X8
Plus: Profit for the year
Less: Dividends
Reclassifications and other reserves
Shareholder equity as of December 31, 20X9

20,000
197
1,000
500
19,697

41

The Balance Sheet


Also called the Statement of Financial Position
Reports

Assets
Liabilities
Shareholders equity

42

Assets on the Balance Sheet


Current

Non-current

Expected to be converted to

Will be held longer than one

cash, sold or consumed in the


next 12 months or within the
business operating cycle
Include

year
Include

o
o
o
o
o

Cash
Short-term investments
Receivables (or debtors)
Inventory
Prepaid expenses

Property, plant and


equipment

o
o

Land
Buildings
Computers
Equipment

Intangibles
Long-term investments

43

Liabilities on the Balance Sheet


Current

Non-current

Obligations or debts payable

Debts payable more than one

in the one year or within the


businesss operating cycle
Include

year from balance sheet date


Include

o
o
o
o

Accounts payable
Taxes payable
Short-term notes payable
Salaries/wages payable

o
o

Long-term notes payable


Bonds payable

44

Shareholders Equity on the Balance Sheet


Represents shareholders ownership of the business

assets
Consists of:
o Paid-in capital (sometimes labeled Share Capital or
simply, Capital)
o Additional paid-in capital (depends on
jurisdictions)
o Retained earnings

45

Balance Sheet
ABC Pte. Ltd.
Statement of financial position
As at 31 Dec 20X9
Current assets
Cash
Inventory
Account receivable
Less allowance for bad debt
Office Supplies

92,750
2,550

Prepaid rent
Prepaid insurance
Non current assets
Equipment
Less acc dep - Equipment
Furniture & fittings
Less acc dep - F&F
Total assets

$
496,200
10,000
90,200
45,800
17,000
250

920,000
460,000
256,000
153,600

460,000
102,400
1,221,850

46

Balance Sheet (Cont)


Current liabilities:
Accounts payable
Salaries payable
Unearned revenue
Interest payable

17,200
31,550
12,150
4,250

Non current liabilities


Bank loan (long term)

170,000

Total liabilities

235,150

Owners' equity
Share capital
Retained earnings
Total owners equity
Total liabilities and owners equity

900,000
86,700

1,221,850
47

The Statement of Cash Flows


Measures cash receipts and cash payments
Fourth required financial statement
Categorizes into three types of activities:

Operating
o Investing
o Financing
o

Copyright 2011 Pearson Education South East Asia

48

48

Cash Flow Categories

Operating
Cash receipts and payments from selling goods
and services

Investing
Purchasing & selling long-term assets

Financing
Issuing stock and borrowing
More of Statement of Cash Flows in seminar 6
49

Relationships between Financial Statements


Income Statement
For the year ended December 31, 20X1
Revenues

50,000

Expenses

(10,000)

Net income

40,000

Statement of Changes in Equity


For the year ended December 31, 20X1
Shareholder equity
Share Capital

30,000

Beginning Retained earnings

20,000

Add: Net income

40,000

Less : Cash dividends

(5,000)

Ending Retained earnings


Shareholders equity

55,000
85,000

50

Statement of Changes in Equity


For the year ended December 31, 20X1
Shareholder equity
Share Capital

30,000

Beginning Retained earnings

20,000

Add: Net income

40,000

Less : Cash dividends

(5,000)

Ending Retained earnings


Shareholders equity

55,000
85,000

Balance Sheet
December 31, 20X1
Assets
Liabilities

100,000
15,000

Shareholders equity:
Share capital

30,000

Retained earnings

55,000

Total liabilities and equity

100,000

51

Balance Sheet
December 31, 20X1

Assets

100,000

Liabilities

15,000

Shareholders equity:
Share capital

30,000

Retained earnings

55,000

Total liabilities and equity

100,000

Statement of Cash Flows


For the year ended December 31, 20X1

Cash flows from operating activities

$$$,$$$

Cash flows from investing activities

$$,$$$

Cash flows from financing activities

$$,$$$

Net cash flows

$$,$$$

Cash balance, December 31, 20X0

$$,$$$

Cash balance, December 31, 20X1

3,000

Cash from
Asset
section of
the Balance
Sheet
equals
ending
Cash on the
Statement
of Cash
Flows

52

Evaluating a Company
Question/Decision

What to look for

Can the company sell its products


or services?

Sale revenue
Increasing or Decreasing?

What are the main income


measures to watch for trends?

Gross profit

What percentage of sales revenue


ends up as profit?

Divide net income by sales


revenue

Can the company collects its


receivables?

Compare change in receivables to


change in sales

Can the company pay its


liabilities?

Compare assets to liabilities

Where is the companys cash


coming from?

Observe the line items on the cash


flow statement

Operating income and Net income

53

Financial Accounting

SEMINAR 1
Chapter 2
Recording Business Transaction

54

The Account
Assets

Liabilities

Shareholders
Equity

Account is a record of all the changes in a particular

asset, liability and shareholders equity element


Basic summary device of accounting

55

Transactions
Events that have a financial impact on the business and

can be measured reliably


Selling products
Paying expenses
Have two sides:
Giving
Receiving
Accounting records both sides of transactions

56

Accounting for Business Transactions


A transaction is any event that both affects the financial
position of the business entity and can be reliably recorded.
EduCamp Pte Ltd
Investment of $24,000 to begin a business by means of ordinary
shares issues.

Asset

Cash
=
(+ $24,000) =

Liabilities + Shareholders Equity


Share capital
(+ $24,000)

57

The accounting equation


Assets = Liabilities + Shareholders equity
Economic
Resources
Assets

Claims to Economic
Resources

: Things of value held by the business

Liabilities : What your business owes creditors


Equity

: The net worth of your company


58

Assets
Assets are the economic resources that benefit the
business now and in the future

Cash
Accounts receivable
Inventory
Notes receivable
Prepaid expenses

Land
Buildings
Equipment,
furniture,
and fixtures

What are the assets of EduCamp Pte Ltd?


59

Answer
Assets of EduCamp Pte Ltd
Cash
Minibus
Computer system
Accounts receivable

60

Liabilities
Liabilities are the debts of the company.

Notes payable
Accounts payable
Accrued liabilities
(for expenses incurred but not paid)
Long-term liabilities (bonds)
What are the liabilities of EduCamp Pte Ltd?
61

Answer
Liabilities of EduCamp Pte. Ltd
Bank loan
Interest payable

62

Shareholders Equity

Share
Capital

Retained
Earnings

Revenues

Dividends

Expenses

63

Analyze business transactions


To demonstrate transaction analysis, we return to

ShineBrite Car Wash, Inc. (Chapter 2 of text)


We consider 11 events and analyze each in terms of its

effect on ShineBrite Car Wash.


We begin by using the accounting equation.
Impact of revenue and expense transactions are taken

directly to equity.

64

Transaction 1. Gray and a few friends invest $50,000 to open ShineBrite Car
Wash, and the business issues ordinary share capital to the shareholders.
Transaction 2. ShineBrite purchases land for a new location and pays cash of
$40,000.
Transaction 3. The business buys supplies on account, agreeing to pay
$3,700 within 30 days. This transaction increases both the assets and the
liabilities of the business.
Transaction 4. ShineBrite earns $7,000 of service revenue by providing
services for customers. The business collects the cash. The effect on the
accounting equation is an increase in the asset Cash and an increase in
Retained Earnings
Transaction 5. ShineBrite performs service amounting to $3,000 on account,
which means that ShineBrite lets some customers pay later.
Transaction 6. During the month, ShineBrite Car Wash pays $2,700 for the
following expenses: equipment rent, $1,100; employee salaries, $1,200; and
utilities, $400.
65

Transaction 7. ShineBrite pays $1,900 on account, which means to pay


off an account payable. The transaction decreases Cash and also decreases
Accounts Payable.
Transaction 8. Van Gray, the major shareholder of ShineBrite Car Wash,
paid $30,000 to remodel his home. This event is a personal transaction of
the Gray family. It is not recorded by the ShineBrite Car Wash business.
Transaction 9. In transaction 5, ShineBrite performed services for UPS on
account. The business now collects $1,000 from UPS. We say that
ShineBrite collects the cash on account, which means that ShineBrite will
record an increase in Cash and a decrease in Accounts Receivable.
Transaction 10. ShineBrite sells some land for $22,000, which is the same
amount that ShineBrite paid for the land.
Transaction 11. ShineBrite Car Wash declares a dividend and pays the
shareholders $2,100 cash.
66

ShineBrite Car Wash, Inc


Txn Cash
1 50,000
2 40000
10,000

Share Retained
Accounts
Accounts
receivable Supplies Land = payable + Capital Earnings
50,000
40,000
40,000
3,700
3,700 40,000

10,000
4 7,000
17,000
3,700 40,000
5
3,000
17,000 3,000 3,700 40,000
6
1100
1200
400
14,300 3,000 3,700 40,000

TypeofEquity
Transaction
issuedsharecapital

50,000
3,700
3,700
3,700
3,700

3,700

50,000
7,000 revenue
50,000 7,000
3,000 revenue
50,000 10,000
1100 expense
1200 expense
400 expense
50,000 7,300

67

ShineBrite Car Wash, Inc


Txn
7
8
9
10
11

Cash

Assets
Accounts
receivable Supplies

Equity
Liabilities
Typeof
Share Retained Equity
Accounts
Land = payable + Capital Earnings Transaction

14,300 3,000 3,700 40,000


1900
12,400 3,000 3,700 40,000
notatransactionbythecompany
12,400 3,000 3,700 40,000
1,000
1000
13,400 2,000 3,700 40,000
22,000
22000
35,400 2,000 3,700 18,000
2100
33,300 2,000 3,700 18,000

$57,000

3,700
1900
1,800

50,000 7,300

1,800

50,000 7,300

1,800

50,000 7,300

1,800

50,000 7,300
2100 Dividends
50,000 5,200

1,800

50,000 7,300

$57,000

68

Double-Entry Accounting
Business transactions include two parts

Giving
Receiving
Accounting based on a double-entry system
Each transaction affects at least two accounts
Every transaction has two journal entries:
A debit and a credit.
Debits must always equal credits

69

The T-Account

Account Title
Debit

LEFT SIDE

Credit

RIGHT SIDE

70

Rules of Debit and Credit

Assets

Debit

Credit

Liabilities

Debit

Credit

Shareholders
Equity

Debit

Credit

71

Additional Shareholders Equity Accounts:


Revenues & Expenses

Liabilities

Assets
Shareholders
Equity

Share Capital
+
Beginning Retained Earnings
+
Revenues
Expenses
Dividends

72

Debit/Credit rule
Type of account

Increase recorded
as

Decrease recorded
as

Revenue

Credit

Debit

Equities

Credit

Debit

Liabilities

Credit

Debit

Assets

Debit

Credit

eXpense

Debit

Credit

Just need to remember


these two
73

Rules of Debit and Credit


EduCamp received $24,000 and issued shares.
Assets

Cash
Debit
for
Increase,
$24,000

Liabilities

Shareholders
Equity
Share capital
Credit
for
Increase,
$24,000

Journal entry
Dr Cash
$24,000
Cr Share Capital
$24,000
74

Increases and Decreases in the Accounts


Illustration :
EduCamp Pte Ltd purchased a minibus for $22,400 cash
Accounting
Equation:

Assets

Liabilities

Rules of
Debit and
Credit:

Debit Credit
Debit Credit
+

+
Cash
Mnibus
Journal entry
($22,400)
($22,400)
Dr Minibus
Cr Cash

Shareholders
+
Equity

Debit Credit

+
$22,400
$22,400
75

Presenting Business Information


Accounting is the information system that identifies, records, and
communicates the economic events of an organisation to
interested users

Accounting - The Language of Business


* Balance sheet Statement of financial position
76

The Language of Business


1. Source document
Captures the key data of the business transaction
Describes the basic facts of the transaction such as its

date, purpose, and amount

2. Double-entry accounting
Every transaction has two journal entries:
A debit and a credit.
Debits must always equal credits

77

The Language of Business


3. General ledger
Main accounting record of a business
Include accounts for such items as current assets, fixed

assets, liabilities, revenue and expense items, gains and


losses
It is a collection of the group of accounts that supports the
items shown in the major financial statements

78

The Language of Business


4. Trial Balance
A basic rule of double-entry accounting is that for

every credit there must be an equal debit amount


The trial balance summarizes all the account balances
of the financial statements and shows whether total
debits equal total credits
A trial balance is usually prepared prior to the
preparation of the financial statements

79

The Language of Business


5. Accounting information is communicated through
the Financial Statements
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Financial Position
Statement of Cash Flows

80

Recording Transactions in the Journal

3 steps :
Identify the transaction and specify each account
affected.
Determine whether each account is increased or
decreased by the transaction. Use the rules of debits
and credits
Enter the transaction in the journal, including a brief
explanation for the entry

81

Flow of Accounting Data

Transaction
Occurs

Transaction
Analyzed

Transaction
Entered in
the Journal

Amounts
Posted to
the Ledger

82

83

Posting from Journal to Ledger


Journal Entry
Accounts and Explanation
Cash
Share capital
Issued ordinary shares

Debit
24,000

Credit
24,000

Posting to the Ledger


Cash
24,000

Share capital
24,000

84

Trial balance
A trial balance may be prepared at any point in time.
However, it is usually done at the end of an
accounting period.
The trial balance adds up all the account balances in
the general ledger.
The debit balances should equal the credit balances.

85

Financial Statements
We now look at an example on how to prepare the
following financial reports from a given set of
transactions:

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Financial Position

Statement of Cash Flows

86

Transactions illustrated example


Transaction for the month of April, 20X9
1) 1st April

Received $25,000 cash and issued shares

2) 3rd April

Bought $400 worth of office supplies on account

3) 5th April

Received $5,000 cash from customers for service revenue earned

4) 6th April

Performed services for customers on account, $1,000

5) 11th April

Paid $200 on the accounts payable created in Transaction (2)

6) 23rd April

Received $1,000 from customer on account

7) 28th April

Paid salary expense of $2,000

87

Journal entries

S/N Date

Description and explanation

(1) 1st April

Dr Cash
$25,000
Cr Share capital
$25,000
To record issuance of shares

(2) 3rd April

Dr Office supplies
$400
Cr Accounts payable
$400
To record purchase of office supplies on account

88

Journal entries
(3) 5th April

Dr Cash
$5,000
Cr Service revenue
$5,000
To record performed service for cash

(4) 6th April

Dr Accounts receivable $1,000


Cr Service revenue
$1,000
To record performed service on account

(5) 11th April Dr


Accounts payable
$200
Cr
Cash
$200
To record payment of cash on account

89

Journal entries
(6) 23th April Dr Cash
$1,000
Cr Accounts receivable
$1000
To record collection of cash on account
(7) 28th April Dr Salary expense
$2,000
Cr Cash
$2,000
To record paid salary expense

90

T-Account

91

T-Account (Cont)T-Account

92

Trial Balance

Note : Debit balance must equal credit balance


93

Preparing Financial Statements

94

Preparing
PreparingFinancial
Financial Statement
Statements

95

Preparing Financial Statements

Note : Assets = Liabilities + Stockholders equity


96

Preparing Financial Statements

Statement of Cash Flows


We will deal with this in Seminar 6

97

Sallys scenario
How can we help Sally?
First we prepare a trial balance.
From the trial balance, we can then proceed to
prepare all the necessary financial statements.

98

Trial Balance of EduCamp


EduCamp Pte Ltd
Trail balance
31st December 20X9
Debit
$
Cash
55,200
Account receivables
32,000
Minibus
22,400
Computer system
4,000
Bank loan
Interest payable
Share capital
Revenue
Salaries expense
48,000
Insurance expense
12,800
Office administration
expense
16,000
Campsite rental expense
12,800
Interest expense
1,280
Dividends
4,800
209,280

Credit
$

24,000
1,280
24,000
160,000

209,280
99

Statement of Comprehensive Income


EduCamp Pte Ltd
Statement of Comprehensive Income
For the year ended 31st December 20X9
Revenue
Cost of sales
Gross Profit
Selling and distribution expenses
Finance costs
Profit/(loss) from continuing operation, net of tax
Profit/(loss) attributable to:
Owners of the parent
Other comprehensive income
Total comprehensive income attributable to:
Owners of the parent

$
160,000
12,800
147,200
(76,800)
(1,280)
69,120
69,120
69,120

10
0

Statement of changes of equity of EduCamp

EduCamp Pte Ltd


Statement of Changes in Equity
For the year ended 31st December 20X9
Beginning retained earnings
Total comprehensive income for the year
Less cash dividends
Ending retained earnings

$
69,120
(4,800)
64,320

10
1

Statement of Financial Position of EduCamp


EduCamp Pte Ltd
Statement of Financial Position
As at 31st December 20X9
Assets

Cash

55,200

Account receivables

32,000

Minibus

22,400

Computer system
Total assets
Liabilities and shareholders' equity
Liabilities
Bank loan
Interest payable
Total liabilities
Shareholders' equity
Share capital
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity

4,000
113,600

$
24,000
1,280
25,280
24,000
64,320
88,320
113,600

10
2