Professional Documents
Culture Documents
BOOK-KEEPING
PROCEDURES
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By the end of this chapter, you should be able to:
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By the end of this chapter, you should be able to:
Continue..
• Financial position
Balance Sheet: provides information on –
Assets;
Liability; and
Owner’s Equity.
• Financial Performance
Income Statement.
Provides information on the company
profitability.
(Revenue – Expenses).
If PROFIT the owner’s equity will increase and if
LOSS will lower the owner’s equity. 4
CLASSIFICATON OF ACCOUNTS
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Example of simple accounting equations:
a) ASSETS = OWNERS’
EQUITY
(Resources in the business) = (Resources
supplied by the owner)
c) ASSETS = LIABILITIES
= (Resources supplied by
other party)
Date Transactions
+wages(4500)+utility(450)]
22 -Asset (cash) decreased RM1250 & Liability (other
Jan creditor – Aseana) decreased RM1250.
- F (6500) + C (3160) + OS(3250) + D(1500) =
OE(15000)+OC(2000)+R(4000)
-[ Adv(750) +
rent(890)
+wages(4500)+utility(450)]
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DOUBLE ENTRY SYSTEM
The financial transaction has two effects
on the financial position of the business.
This means that each transaction must
be recorded twice in the books of
accounts i.e. DEBIT and CREDIT.
Thus, for any transaction, the amount of
debit must be EQUAL with the amount of
credit. Examples;
If transaction reduces an asset it must
also:
↔Increase another asset,or
↔Decrease a liability, or
↔Decrease owner’s equity
An item that increases/decrease Assets
must be debit/credit; 13
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DEBITS AND CREDITS
Cash A/c
DEBIT CREDIT
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Use the same examples in accounting equation but
change to double entry system.
Date Transactions
1 Jan Winnie started business with RM15,000 cash
3 Jan Bought business furniture in cash at cost
RM6500
4 Jan Bought an office supplies amounted RM3250 on
credit from Aseana
8 Jan Received cash for services rendered amounted
RM2250
10 JanPaid advertising expense amounted RM750
15 Jan Services being performed to Ali Trading;
received RM250 in cash and RM1500 on credit.
18 JanPaid rent RM890, wages RM4500 and utility
expenses RM450 on cash 16
ANALYSED DATA
POSTING TO LEDGER
CLOSING ENTRY
POSTING TO LEDGER
REVERSING ENTRY
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STEPS IN ACCOUNTING CYCLE (IN DETAIL)
1. ANALYSED DATA
Accounting data that is related to the business
transaction only will be taken into
consideration in recording process.
2. SOURCE OF DOCUMENT
Any kind of document that are prepared for
every business transaction.
Eg: invoices, cheque butt,debit notes and
credit notes etc..
Purpose:
the document are prepared as a written
evidence for each transaction.
to be used by an accountant to support the
entry made in the accounting record.
3. JOURNAL
Transaction are initially recorded in
chronological order in a journal before being
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transferred to the account. (BOOK OF
ORIGINAL ENTRY)
Purpose:
Disclose one place the complete effect of
transaction
Provide chronological record of transactions
Helps to prevent or locate errors.
Types of journal:
Special Journal – make an entry on the
frequently basis and
from the same category. Eg; credit sales and
credit purchase.
General Journal – entry that are not in the
special journal
category.
Example:Ray invested RM10,000 cash in the
Date
business Description
on 1 Jun Ref Debit Credit
1 Jun2000.
Cash 10,000
Capital 10,000
General Journal
J1 (Owner contribute cash
capital into a business 19
4. LEDGER
the entire group of account maintained by a
company is referred to collectively as a
ledger.
Purpose:
to ensure the entire recording process are
distribute among workers
to ensure the reference and controlling can
be done easily.
to increase efficiency in recording process.
format of Account Ledger:
Date Explanati Ref Debit Credit Balance
on Cash A/c No2
OR
Cash A/c
DEBIT CREDIT
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Types of Ledger:
General Leger
• is a group of account that will be presented
in the financial
statement, such as account asset, liability and
capital.
• also included in the general ledger are
DEBTORS or
CREDITORS CONTROL account. The control
account will
control subsidiary ledger of each debtors or
creditors.
Subsidiary Ledger
• is a detail ledger for a account such as
debtors and creditors.
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Posting procedures.
Ray contributed RM10,000 cash in the business on 1 Jun
1999.
General Journal J1
Date Description Ref Debit Credit
1 Jun Cash 2 10000
Capital 22 10000
(Owner contribute cash capital in a
business)
General Ledger
Cash
No 2
Date Explanati Ref Debit Credit Balanc
on e
1 Jun Capital J1 10000 10000
Capital
No22
Date Explanati Ref Debit Credit Balanc
on e
1 Jun Cash J1 10,000 10,000
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5. TRIAL BALANCE
Trial balance is a list of account and their
balances at their given time.
Purpose:
to prove the mathematical equality of debit and
credit.
the trial balance also discovers errors in
journalizing and
posting
useful in preparing financial statement
Format in preparing Trial Balance
Listing the account titles and balances at the
end of the
accounting period. How to know whether
the accounts
have DEBIT or CREDIT BALANCE?? If total
debits
exceed total credit, the account has a debit
balance and 23
vice versa.
Eg:
XYZ Company
Trial Balance as at 30 Jun 2000
Debit Credit
Capital 15,000
Cash 15000
15000 15000
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6. Adjustment Entry and Correcting Errors:
Why we need to make adjustments to the
financial statement?
Reason: there is a timing differences and
recognizing revenue
and expenses.
Accounting period vs Fiscal year
•Fiscal year (one year period)
- usually begins with the first day of the month
and ends 12
month later.
•Accounting period
- accounting period usually coincides with
calendar year
(1 January until 31 December)
- eg; If the company chooses to prepare their
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financial statement
Recognizing Revenue and Expenses
• In order for revenue to be recorded in the
period in which they are
earned and for expenses to be recognized in the
period in which
they are incurred, adjusting entry entry are
required.
• Matching between revenue and expenses that
are earned and
charge. (MATCHING CONCEPT)
• Example: Rent expense: RM1200 per year
1 Jan 31 Dec
Date Description Dt Ct
31 Dec Income 1,500
2000 Statement
Rent 300
Salaries 1200
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8. REVERSING ENTRIES
is an entry prepared for the beginning of the
next accounting
period. The entries are taking from the
adjustment entries
from accounting period.
Purpose:
to simplified and summarized the entries for
preparation the
new entries for the new accounting period.
XYZ Enterprise paid their workers salaries
every 2 weeks.
On the 31 December 2001, there are unpaid
salaries
amounted RM6000.
• Normal Entries:
31 Dec Dt Salary expense
6,000
Cr Unpaid Salary 29 6,000
• Reversing Entries:
9. CORRECTING ERRORS:
a. Errors no affecting trial balance
complete omission of transactions
reversal entry (entry suppose to debit are
credit instead)
an error of commission (debit in the wrong
account but
with the right type)
error of principle (entry made entirely wrong
type of
account)
error at the book of prime entry
a pair of compensating error
b.Errors affecting trial balance
error of single entry
error of amount entered into the books
calculating the balance in the ledger
incorrectly 30