Notes Account


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Notes Account

  1. 1. Accounting process Identification – A company select the economic events relevant to its business. Recording – Records those events in order to provide a history of its financial activities. Communication – Communicates the collected information to interest users by means of accounting reports. Uses Accounting Data Internal Users – Are those individuals inside the company who plan, and organize the company. (managers, supervisors, finance director, company officers) External Users – Are individuals and organizations outside a company who want financial information about the company. (investors, creditors, customers, labor unions, IRS, SEC) Managerial Accounting Provides internal reports to help users make decisions. Eg :  Financial comparisons of operating alternatives.  Projections of income from new sales campaigns.  Forecast of cash needs. Financial Statements  Income Statement  Statement of Owner’s Equity  Balance Sheet  Statement of Cash Flow  Note Disclosure Organizations Involved in Standard Setting  Securities and Exchange Commission (SEC)  Financial Accounting Standards Board (FASB)  International Accounting Standard Board (IASB) Organization (Malaysia)  Securities Commission (SC) and Bursa Malaysia.  Malaysian Accounting Standard Board (MASB)  Malaysia Institute of Accounting (MIA)  Companies Commission of Malaysia (CCM) Cost Principle – Dictates that companies record assets at their coat. ISSUES :  Reported at cost when purchased and also over the time the asset is held.  Cost easily verified, whereas market value is often subjective.  Fair value information may be more useful. Monetary Unit Assumption – Include in the accounting records only transaction data that can be expressed in terms of money. Eg:  The health of a company’s owner.  The quality of services.  The morale of employees are not include. Economic Entity Assumption – Requires that activity of the entity be kept separate and distinct from the activity of its owner and all other economic entities. Proprietorship A business owned by one person. The owner receive any profits and suffers. Strength :  Easily formed.  Can solely enjoy the profit (no need to share with others)  Does not depend on other people.  No charges with special income tax. Weaknesses :  Unlimited liability.  Limited capital.  Owner needs to give full commitment to the business.  Limited life. Partnership (Act : 1966) An association of two or more persons to carry on as co-owners of a business for profit CHARACTERISTICS:  Association of individuals – May be based on as simple an act as a handshake, it is preferable to state the agreement in writing (Legal entity – for certain purposes) (Accounting entity – for financial reporting purposes)  Co-ownership of Property – each partner has a claim on total assets. – Assets invested are owned jointly by all the partners. (ASSETS) – net income or net loss is shared equally (INCOME/LOSS)  Mutual Agency – each partner acts on behalf of the partnership when engaging in partnership business
  2. 2.  Limited Life – dissolution occurs whenever a partner withdraws or a new partner is admitted. – Dissolution does not mean the business ends.  Unlimited Liabilities – each partner is personally liable for all partnership liabilities. ADVANTAGES:  Combining skills and resources of two or more individuals  Ease of formation  Freedom from governmental regulations and restrictions Difference Financial Statement of Partnership  Income Statement are identical and similar to sole proprietorship except for division of net income  The owner’s Equity statement is called the partner’s capital statement  In balance sheet, each partner’s capital balance is reported in the owner’s equity section  This statement shows the changes in each partner’s capital account and total partnership capital Company (Act : 1965) Strength :  Limited liability.  Can easily get large capital.  Ownership can be easily transferred. Weaknesses :  High corporate tax.  No fixed ownership. Double – entry  Each transaction must affect two or more accounts to keep the basic accounting equation in balance.  DEBITS must equal CREDITS Journal  Book of original entry  Transactions recorded in chronological order (earlier record)  Discloses the complete effects of a transaction  Helps to prevent errors Simple entry – 2 accounts, 1 debit and 1 credit Compound entry – 3 or more accounts The ledger  Contains the entire group of accounts maintained by a company (Assets, liabilities, owner’s equity, revenue, and expenses accounts)  T – accounts  Column ( are much more structured) Posting – the process of transferring amounts from the journal to the ledger accounts. The account number is entered:  To indicate that the entry has been posted to the ledger  To make sure all the account has been posted Chart of Accounts  That list the accounts and the accounts numbers that identify their location in the ledger Trial balance  A list of accounts and their balances at a given time  Purpose is to prove that debits equal credits Accounting information flows 1. Business transaction occurs 2. Information entered in the journal 3. Debits and credits posted to the ledger 4. Trial balance is prepared 5. Financial statements are prepared Income Measurement  Sales Revenue – Cost of goods sold = Gross profit  Gross profit – Operating expenses = Net Income Cost of goods sold is a total cost of merchandise sold during the period. Periodic System  Purchases of merchandise increase purchases  Ending inventory determined by physical count  Calculation of Cost of Goods Sold: Beginning inventory $100, 000 Add: Purchases, net 800, 000 Goods available for sale 900, 000 Less: Ending inventory 125, 000 Cost of goods sold 775, 000 Freight Costs  FOB shipping point – seller places goods Free On Board the carrier, buyer pays freight costs. (Debit to Merchandise Inventory)  FOB destination – seller places the goods Free On Board to the buyer’s place of business, seller pays freight costs. (Debit to Freight-out)
  3. 3. Purchase Discounts Terms  2/10, n/30 – 2% cash discount if payment is made within 10 days. Net amount due in 30 days.  1/10 EOM – 1% cash discount if paid within first 10 days of next month.  N/30, m/60, or n/10 EOM – Net amount due in 30 days, 60 days, or within the first 10 days of the next month. Purchase Return – return goods for credit if the sale was made on credit or for a cash refund if the purchase was for cash. Purchase Allowance – May choose to keep the merchandise if the seller will grant an allowance (deduction) from the purchase price. Adjusting Entries  Needed to ensure that the revenue recognition and matching principles are followed  To ensure expenses are recognition in the period in which they are incurred  To ensure revenues are recorded in the period in which they are earned  To ensure balance sheet and income statement accounts have correct balances at the end of an accounting period  One additional adjustment to make the records agree with the actual inventory on hand  Make it possible to report correct amounts on the balance sheet and on the income statement Closing Entries – Close all accounts that effect net income. Multiple – Step Income Statement  Shows several steps in determine net income  2 steps relate to principle operating activities  Distinguish between operating and non – operating activities Timing Issues  Fiscal year – an accounting time period that is one year in length.  Calendar year – January to December 31  Interim periods – accounting time periods are generally a month, a quarter. Accrual-Basis Accounting  Transactions recorded in the period in which the events occur  Revenues are recognized when earned, rather than when cash is received  Expenses are recognized when incurred, rather than when paid Cash-Basis Accounting  Not in accordance with generally accepted accounting principles (GAAP)  Revenues are recognized when cash is received  Expenses are recognized when cash is paid Deferrals  Prepaid expenses – expenses paid in cash and recorded as assets before they are used  Unearned revenues – revenues received in cash and recorded as liabilities before they are earned Accruals  Accrued revenues – revenues earned but not yet received in cash or recorded  Accrued expenses – expenses incurred but not yet paid in cash or recorded Matching principle  Match expenses with revenues in the period when the company makes efforts to generate those revenues  Effort (expenses) must be matched with accomplishment (revenues) Trial Balance – each account is analyzed to determine whether it is complete and up-to-date Prepaid expenses – costs that expire either with the passage of time or through use Fair Market Value – that the assets should be recorded when a partner invests a non cash assets in a partnership Book Value – Cost – accumulated depreciation Original Cost = Historical Cost Doubtful Debt – Ada hutang yg x dpt bayar Closing Entries  Close all Revenue and Expenses accounts to Income Summary  Close Income Summary to each partner’s Capital account for the share of net income or loss  Close each partners Drawing account to the respective Capital account
  4. 4. SERVICES De’ Fabulous Studio Company Income Statement For the Month Ended January 31, 2012 Revenues: Debit Credit Service revenue RM 22, 000 Expenses: Rent expense RM 1, 500 Salaries expense RM 7, 000 Utilities expense RM 1, 000 Total expenses: (RM 9, 500) Net Income RM 12, 500 De’ Fabulous Studio Company Balance Sheet At January 31, 2012 Assets: Cash RM 77, 250 Account Receivable RM 22, 000 Supplies RM 8, 000 Office Equipment RM 12, 000 Prepaid Insurance RM 1, 000 Total Assets: RM120, 250 Liabilities and Owner’s Equity: Accounts Payable RM 8, 000 Total liabilities: RM 8, 000 Owner’s Equity: Capital RM112, 250 Net Income RM120, 250 De’ Fabulous Studio Company Statement of Owner’s Equity For the Month Ended January 31, 2012 Debit Credit Capital January 1 RM 0 Add : Investment RM 100, 000 Net Income RM 12, 500 RM 112, 500 Less : Drawings (RM 250) Capital January 31 RM 112, 250 De’ Fabulous Studio Company Trial Balance At January 31, 2012 Account Debit Credit Cash RM77,250 Account receivable RM 22,000 Supplies RM 8,000 Prepaid Insurance RM 1,000 Office Equipment RM 12,000 Accounts Payable RM 8,000 Capital RM100,000 Drawing RM 250 Service revenue RM 22,000 Rent Expenses RM 1, 500 Salaries expenses RM 7,000 Utilities expense RM 1,000 Total RM130,000 RM130,000 De’ Fabulous Studio Company Statement of Cash Flows For the Month Ended January 31, 2012 Debit Credit Cash flows from operating activities Cash receipt from revenues 0 Cash payment for expenses (9,500) Net cash provided by operating activities (9,500) Cash flows from investing activities Purchase of equipment (12, 000) Prepaid Insurance (1,000) Cash flows from financing activities Investment by owner 100,000 Drawings by owner (250) 99,750 Net increase in cash 77,250 Cash at the beginning of the period 0 Cash at the end of the period 77,250
  5. 5. MERCHANDISE De’ Fabulous Studio Company Adjusted Trial Balance At March 31, 2012 Account Debit Credit Cash RM75,850 Accounts Receivable 500 Equipment 5,000 Inventory 31,100 Accounts Payable RM35,000 Sales 50,000 Cost of goods sold 17,150 Sales returns and allowances 5,000 Depreciation expenses 3,500 Accumulated depreciations- Equipment 3,500 Salary expenses 7,000 Utility Expenses 1,500 Insurance Expenses 1,000 Accrued Salary 7,000 Accrued utility 1,500 Service Revenue 500 Prepaid insurance 1,000 Sales Discount 900 Capital 50,000 Total RM148,500 RM148,500 MULTIPLE – STEP De’ Fabulous Studio Company Income Statement For the Month Ended March 31, 2012 Sales Revenue Sales R50, 000 Less: Sales returns and allowance 5, 000 Sales discounts 900 5, 900 Net sales 44, 100 Cost of goods sold (17, 150) Gross Profit 26, 950 Operating expenses Utility expenses 1, 500 Salary expenses 7, 000 Insurance Expenses 1, 000 Depreciation expenses 3, 500 Total operating expenses (13, 000) Income from operations 13, 950 Other revenues and gains Services revenue 500 Net income 14, 450 SINGLE – STEP De’ Fabulous Studio Company Income Statement For the Month Ended January 31, 2012 Revenues: Debit Credit Net Sales RM 44, 100 Service Revenue 500 Total Revenues RM44,600 Expenses: Cost of goods sold RM17, 150 Operating Expenses 13, 000 Interest Expenses Total expenses: (RM 30,150) Net Income RM 14, 450 De’ Fabulous Studio Company Statement of Owner’s Equity For the Month Ended March 31, 2012 Debit Credit Capital March 1 RM 0 Add : Net profit RM 14, 450 Investment RM 50, 000 RM 64,450 Less : Drawings 0 Capital March 31 RM 64, 450
  6. 6. De’ Fabulous Studio Company Balance Sheet (Partial) At March 31, 2012 Assets Cash RM75, 850 Accounts receivable 500 Prepaid insurance (1, 000) 75, 350 Merchandise Inventories 31, 100 Equipment RM5, 000 Less: Accumulated depreciation (3, 500) 1, 500 Total assets RM107, 950 Liabilities Accounts Payable RM35, 000 Accrued utility 1, 500 Accrued salary 7, 000 Total liabilities 43, 500 Owner’s equity Ending capital 64, 450 Total RM107, 950 PERIODICLE  Purchases  Purchases return and allowance  Freight-in expenses  Purchases discount PERPETUAL  Merchandise Inventory GENERAL JOURNAL (CLOSING ENTRIES) Sales XXX Income Summary XXX Income Summary XXX Cost of goods sold XXX Freight-out XXX Insurance expense XXX Rent expense XXX Salary expense XXX Sales discount XXX Sales Returns XXX Income Summary XXX Capital XXX GENERAL JOURNAL (RECORD SALE) Dr Cash / Acc receivable XXX Cr Sale XXX Dr Cost of goods sold XXX Cr Merchandise Inventory / purchases XXX Dr Sales returns and allowances XXX Cr Acc receivable XXX Dr Merchandise Inventory XXX Cr Cost of goods sold XXX Dr Cash XXX Dr Sales discounts XXX Cr Acc receivables XXX GENERAL JOURNAL (ADJUSTING ENTRIES) Dr Prepaid Insurance XXX Cr Cash XXX Dr Prepaid Insurance XXX Cr Insurance Expense XXX Dr Equipment XXX Cr Cash XXX Dr Depreciation Expense XXX Cr Accumulated Depreciation XXX Dr Cash XXX Cr Unearned Revenue XXX Dr Unearned Revenue XXX Cr Revenue XXX Dr Investment XXX Cr Cash XXX Dr Interest Receivable XXX Cr Interest Revenue XXX Dr Cash XXX Cr Notes Payable XXX Dr Interest Expense XXX Cr Interest payable XXX
  7. 7. PARTNERSHIP M. Syukur M. Hafizin F.Najihah Total Salary allowance RM 2,000 RM 2,000 RM 2,000 RM 6,000 Interest allowance on capital M. Syukur (RM 40,000 X 10%) RM 4,000 M. Hafizin (RM 25,000 X 10%) RM 2,500 F. Najihah (RM 15,000 X 10%) RM 1,500 Total interest RM 8,000 Total salaries and interest RM 6,000 RM 4,500 RM 3,500 RM 14,000 Remaining income, RM 900 M. Syukur (RM 900 X 1/3) RM 300 M. Hafizin (RM 900 X 1/3) RM 300 F. Najihah (RM 900 X 1/3) RM 300 Total remainder RM 900 Total division of net income RM 6,300 RM 4,800 RM 3,800 RM 14, 900 GENERAL JOURNAL J3 Date Accounts Titles and Explanation Ref Debit Credit Income Summary RM 14, 900 M. Syukur, Capital [ RM 2,000 + (RM 40,000 X 10%) + (RM 900 X 1/3) ] RM 6, 300 M. Hafizin, Capital[ RM 2,000 + (RM 25,000 X 10%) + (RM 900 X 1/3) ] RM 4, 800 F. Najihah, Capital [ RM 2,000 + (RM 15,000 X 10%) + (RM 900 X 1/3) RM3, 800