Вы находитесь на странице: 1из 49

1

Click to edit Master title style

ANALYZING TRANSACTIONS
Accounting: A Malaysian Perspective, 4th ed (Adapted from Accounting 22nd ed) Warren, Reeve and Duchac
1

Click to edit Master title style


1. Describe the characteristics of an account and record transactions using a chart of accounts and journal. 2. Describe and illustrate the posting of journal entries to accounts. 3. Prepare an unadjusted trial balance and explain how it can be used to discover errors. 4. Discover and correct errors in recording transactions.
2

Click to edit Master title style Objective 1


Describe the characteristics of an account and record transactions using a chart of accounts and journal

2-1

Definitions

Click to edit Master title style


Journal
Book of first entry
Separate record showing increases and decreases for each FS item

2-1

Account Ledger Chart of accounts

A group of accounts for a business entity


A list of the accounts in a ledger

T Account Click

to edit Master title style


Title

2-1

Debit (left side)

Credit (right side)

T Account example Click- to edit

Master title style


Date Equipment 20,000 Rent exp 800 Wages exp 150 Bal c/d 9,050 30,000

2-1

Cash
Date Capital Fees 25,000 5,000 . Bal b/d 30,000 9,050

Balance of the account

Types of accounts

Click to edit Master title style


Assets
Expenses
Liabilities

2-1

Accounts

Revenues

Owners equity

Drawing

Balance Sheet Click toAccounts edit Master

title style
Drawing
withdrawals by owner

2-1

Assets
resources owned by the business Examples: cash, supplies, AR, office equipment

Liabilities
debts owed to outsiders (creditors) Examples: AP, salaries payable

Owners Equity

owners right to the assets of the business

Income Statement Accounts Click to edit Master


Revenues increases in owners equity as a result of selling services or products Examples: fees earned, commission revenue, rent revenue

title style

2-1

Expenses cost of using up assets or consuming services in the process of generating revenues Examples: wages expense, rent expense, miscellaneous expense
9

10

Click to edit Master title style


IMPORTANT NOTE

2-1

Every transaction would affect at least 2 accounts


10

11

Journal entries Click to edit

Master title style

2-1

Every transaction would first be recorded in a journal The process of recording a transaction in the journal is called journalizing
Date 1 2 3 Description PR Debit Credit

Journal

Pg
11

12

Journalizing steps Click to edit


1. Record the date.

Master title style

2-1

2. Record the title of the account debited in the Description column.


3. Enter the amount in the Debit column. 4. Record the title of the account credited in the Description column. 5. Enter the amount in the Credit column.
12

13

Journal entries Balance Sheet Click to edit Master Accounts

title style

2-1

(a) On November 1, Idris Ismail opens a new business and deposits RM25,000 in a bank account in the name of NetSolutions. Journal
Date Description Idris Ismail, Capital Invested cash in NetSolutions. PR Debit 25,000 25,000 Nov 1 Cash

Pg
Credit

13

14

Effect of the entry on the accounts

Click to edit Master title style


Cash Idris Ismail, Capital

2-1

Nov 1 25000

Nov 1 25000

14

15

Journal entries Balance Sheet Click to edit Master Accounts

title style

2-1

(b) On November 5, NetSolutions bought land for RM20,000, paying cash.

Journal
Date Description Cash Purchased land for cash. PR Debit

Pg
Credit 20,000

Nov 5 Land

20,000

15

16

Journal entries Balance Sheet Click to edit Master Accounts

title style

2-1

(c) On November 10, NetSolutions purchased supplies on account for RM1,350.

Journal
Date Description Accounts Payable Purchased supplies on account. PR Debit Nov 10 Supplies

Pg
Credit 1,350 1,350

16

17

Journal entries Balance Sheet Click to edit Master Accounts

title style

2-1

(f) On November 30, NetSolutions paid creditors on account , RM950.


Journal
Date Description Cash Paid creditors on account. PR Debit 950 950 Nov 30 Accounts Payable

Pg
Credit

17

18

BS accounts to debit & credit rule Click edit Master


Debit
Asset accounts Liability accounts Owners equity (capital) accounts Increase (+) Decrease (-) Decrease (-)

title style
Credit
Decrease (-) Increase (+) Increase (+)

2-1

Owners equity (drawing) accounts

Increase (+)

Decrease (-)

18

19

BS accounts debit & credit rule


Assets
Debit for increases (+) Credit for decreases (-)

Click to edit Master title style


Liabilities & OE (Capital)
Debit for Credit for decreases (+) increases (-)

2-1

19

20

Example exercise Click to 2-1 edit

Master title style

2-1

Prepare a journal entry for the purchase of a truck on June 3 for RM42,500, paying RM8,500 cash and the remainder on account.

Journal
June 3 Truck Cash Accounts Payable 42,500

PG

8,500 34,000

20

21

Journal entries income statement Click to edit Master accounts

title style

2-1

(d) On November 18, NetSolutions received fees of RM7,500 from customers for services provided during the month. Journal
Date Description Fees Earned Received fees from customers. PR Debit 7,500 7,500 Nov 18 Cash

Pg
Credit

21

22

Journal entries income statement Click to edit Master accounts

title style

2-1

(e) Throughout the month, NetSolutions incurred the following expenses: wages RM2,125; rent RM800; utilities RM450; and miscellaneous RM275. Journal Pg
Date Description
Rent expense Utilities expense Miscellaneous expense

PR

Debit
2,125 800 450 275

Credit

Nov 30 Wages expense

Cash
Paid expenses for the month.

3,650

22

23

Journal entries income statement Click to edit Master accounts

title style

2-1

(g) On November 30, a count revealed that RM800 of the supplies inventory had been used during the month. Journal Pg
Date Description Supplies Supplies used during the month. PR Debit 800 800 Credit Nov 30 Supplies expense

23

24

IS accounts debit & credit rule


Debit
Revenue accounts
Expenses accounts

Click to edit Master title style


Credit
Increase (+)
Decrease (-)

2-1

Decrease (-)
Increase (+)

Revenues
Debit for Credit for decreases (+) increases (-)

Expenses
Debit for Credit for increases (+) decreases (-)

24

25

Net income / net Click toloss edit

Master title style

2-1

Revenues Expenses = Net income or Net loss

Revenues > Expenses = Net income increases Owners equity (capital) Revenues < Expenses = Net loss decreases Owners equity (capital)
25

26

Example exercise Click to 2-2 edit

Master title style

2-1

Prepare a journal entry on August 7 for the fees earned on account, RM115,000. Journal
Aug 7 Accounts Receivable Fees earned 115,000 115,000

Pg

26

27

Drawing account

Click to edit Master title style

2-1

When owner of a proprietorship withdraws cash from the business for personal use Decreases owners equity (capital)

27

28

Drawing account - example

Click to edit Master title style

2-1

On November 30, Idris Ismail withdrew RM2,000 in cash from NetSolutions for personal use.

Nov 30 Idris Ismail, Drawing Cash

2,000 2,000

Journal

Owner withdrew cash for personal use.

28

29

Example exercise Click to 2-3 edit

Master title style

2-1

Prepare a journal entry on December 29 for the payment of RM12,000 to the owner of Smart Consulting Services, Danny Wong, for personal use.
Dec 29 Danny Wong, Drawing Cash Owner withdrew cash for personal use. 12,000 12,000

29

30

Debit & credit rule and normal Click to edit Master balance
Increase
BS accounts:
Asset Liability Owners equity Capital Drawing Credit Debit Credit Debit Debit Debit Credit

title style
Normal balance
Debit Credit Credit Debit Credit Debit

2-1

Decrease
Credit Debit

Credit Debit Credit

IS accounts:
Revenue Expense 30

31

Example exercise Click to 2-4 edit

Master title style

2-1

State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance. 1. 2. 3. 4. 5. 6. Amber, Drawing Accounts Payable Cash Fees Earned Supplies Utilities Expense
31

32

Click to edit Master title style


Amber, Drawing Accounts payable Cash Fees Earned Supplies Utilities Expense
Dr entries only Normal Dr balance Dr and Cr balances Normal Cr balance Dr and Cr balances Normal Dr balance Cr entries only Normal Cr balance

2-1

Dr and Cr entries Normal Dr balance


Dr entries only Normal Dr balance

32

33

Accounting equation

Click to edit Master title style

2-1

ASSETS = LIABILITIES + OWNERS EQUITY

The accounting system is known as the double entry accounting system Each transaction would affect at least 2 accounts Total debits would always equal total credits
33

34

Transaction analysis

Click to edit Master title style


Determine which account is affected by the transaction. Determine whether the account increases or decreases.

2-1

Determine whether the account should be debited or credited.

Record the transaction using journal entry.

Post the journal entries to the accounts in the ledger.

Prepare an unadjusted trial balance at the end of the period.

34

35

Click to edit Master title style Objective 2


Describe and illustrate the posting of journal entries to the accounts

2-2

35

36

Posting Click

to edit Master title style

2-2

The process of transferring the debits and credits from the journal entries to the accounts

36

37

example Click

to edit Master title style

2-2

Dec.1 NetSolutions paid a premium of RM2,400 for a comprehensive insurance policy covering a one-year period.

Dec 1

Prepaid Insurance Cash

2,400 2,400

The entry would then be posted to the accounts (using the 3-column account) refer Exhibit 5 Refer to the text book for the full example

37

38

Example exercise 2-5

On March 1, the cash account balance was RM22,350. During March, cash receipts totaled RM241,880 and the March 31 balance was RM19,125. Determine the cash payments made during March. Refer to the text book to solve using T-account Alternatively:

Click to edit Master title style

2-2

Opening balance + Cash receipts Cash payments = Closing balance


38

39

Click to edit Master title style Objective 3


Prepare an unadjusted trial balance and explain how it can be used to discover errors

2-3

39

40

Trial Click balance

to edit Master title style

2-3

A list of all the accounts maintained by the business entity, along with their respective balances Refer Exhibit 7 for an example of a Trial Balance

40

41

Example exercise 2-6

Click to edit Master title style

2-3

Indicate whether the errors would cause the TB totals to be unequal. If so, indicate whether the Dr or Cr total is higher and by how much. a. Cash withdrawal of RM5,600 was journalized and posted as a debit of RM6,500 to Salary Expense and a credit of RM6,500 to Cash.

The totals are equal since both the debit and credit entries were journalized and posted for RM6,500. 41

42

Click to edit Master title style


b. A fee of RM2,850 earned from a client was debited to Accounts Receivable for RM2,580 and credited to Fees Earned for RM2,850.

2-3

The totals are unequal. The credit total is higher by RM270 (RM2,850 RM2,580).
42

43

Click to edit Master title style


c. A payment of RM3,500 to a creditor was posted as a debit of RM3,500 to Accounts Payable and a debit of RM3,500 to Cash.

2-3

The totals are unequal. The debit total is higher by RM7,000 (RM3,500 + RM3,500).

43

44

Click to edit Master title style Objective 4


Discover and correct errors in recording transactions

2-4

44

45

TypesClick of errors to

edit Master title style

2-4

Refer Exhibit 8 Transposition - occurs when the order of the digits is changed mistakenly, such as writing RM542 as RM452 or RM524. Slide - the entire number is mistakenly moved one or more spaces to the right or the left, such as writing RM542.00 as RM54.20.
45

46

Example exercise Click to 2-7 edit

Master title style

2-4

Prepare correcting entries for the following errors: a. A withdrawal of RM6,000 by Cheri Ramey, owner of the business, was recorded as a debit to Office Salaries Expense and a credit to Cash. b. Utilities Expense of RM4,500 paid for the current month was recorded as a debit to Miscellaneous Expense and a credit to Accounts Payable.
46

47

(a) A withdrawal was debited to Office Salaries Expense and credited to Cash. The wrong entry: Office Salaries Expense Cash The correct entry:

Click to edit Master title style


6,000 6,000

2-4

Cherie Ramey, Drawing Cash The correcting entry:

6,000 6,000

Cheri Ramey, Drawing Office Salaries Expense

6,000 6,000

47

48

(b) Utilities Expense for the current month was debited to Miscellaneous Expense and credited to Accounts payable. The wrong entry: Miscellaneous Expense 4,500

Click to edit Master title style

2-4

Accounts Payable The correct entry:

4,500

Utilities Expense Cash

4,500 4,500

48

49

The correcting entry:

Click to edit Master title style


Accounts Payable
Miscellaneous Expense Utilities Expense Cash 4,500 4,500

2-4

4,500
4,500

The first entry reverses the incorrect entry, and the second entry records the correct entry
49