20100712160725 chapter 2 double entry system

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  • 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  • Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods
  • 20100712160725 chapter 2 double entry system

    1. 1. Chapter 2 THE DOUBLE ENTRY BOOKKEEPING (SISTEM CATATAN BERGU)
    2. 2. <ul><li>Explain what an account is and how it helps in the recording process. </li></ul><ul><li>Define debits and credits and explain their use in recording business transactions. </li></ul><ul><li>Identify the basic steps in the recording process . </li></ul>Study Objectives
    3. 3. The Account <ul><li>Debits and credits </li></ul><ul><li>Expansion of basic equation </li></ul>Steps in the Recording Process The Recording Process Illustrated The Trial Balance <ul><li>Limitations of a trial balance </li></ul><ul><li>Locating errors </li></ul><ul><li>Use of dollar signs </li></ul><ul><li>Summary illustration of journalizing and posting </li></ul>The Recording Process <ul><li>Journal </li></ul><ul><li>Ledger </li></ul>
    4. 4. The Account <ul><li>Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. </li></ul><ul><li>Debit = “Left” </li></ul><ul><li>Credit = “Right” </li></ul>Account An Account can be illustrated in a T-Account form. LO 1 Explain what an account is and how it helps in the recording process.
    5. 5. THE ACCOUNTS FOR DOUBLE ENTRY The left hand side is called debit side; the right side is called the credit side.(T- account) Eg. If you paid RM10 by cheque for kettle, so debit the kettle account and credit bank account
    6. 6. Debits and Credits <ul><li>Double-entry accounting system </li></ul><ul><li>Each transaction must affect two or more accounts to keep the basic accounting equation in balance. </li></ul><ul><li>Recording done by debiting at least one account and crediting another. </li></ul><ul><li>DEBITS must equal CREDITS . </li></ul>LO 2 Define debits and credits and explain their use in recording business transactions.
    7. 7. In terms of asset, liabilities, and capital 1. To increase an asset we make debit entry. 2. To decrease an asset we make a credit entry 3. To increase a liability/capital account we make a credit entry 4. To decrease a liability/capital account we make a debit entry.
    8. 8. Debits and Credits If Debits are greater than Credits, the account will have a debit balance. $10,000 Transaction #2 $3,000 $15,000 8,000 Transaction #3 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions.
    9. 9. Debits and Credits If Debits are smaller than Credits, the account will have a credit balance. $10,000 Transaction #2 $3,000 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. $1,000 8,000 Transaction #3
    10. 10. Expansion of the Basic Equation <ul><li>Relationship among the assets, liabilities and owners’ equity of a business: </li></ul>The equation must be in balance after every transaction. For every Debit there must be a Credit . Illustration 2-11 Assets Liabilities = Owners’ Equity Basic Equation Expanded Basic Equation LO 2 Define debits and credits and explain their use in recording business transactions. +
    11. 11. Debits and Credits Summary <ul><li>Debits: </li></ul><ul><ul><li>increase both assets and liabilities. </li></ul></ul><ul><ul><li>decrease both assets and liabilities. </li></ul></ul><ul><ul><li>increase assets and decrease liabilities. </li></ul></ul><ul><ul><li>decrease assets and increase liabilities. </li></ul></ul>Review Question LO 2 Define debits and credits and explain their use in recording business transactions.
    12. 12. Assets and Liabilities <ul><li>Assets - Debits should exceed credits. </li></ul><ul><li>Liabilities – Credits should exceed debits. </li></ul><ul><li>The normal balance is on the increase side. </li></ul>LO 2 Define debits and credits and explain their use in recording business transactions.
    13. 13. Owners’ Equity <ul><li>Owner’s investments and revenues increase owner’s equity (credit). </li></ul><ul><li>Owner’s drawings and expenses decrease owner’s equity (debit). </li></ul>LO 2 Define debits and credits and explain their use in recording business transactions.
    14. 14. Debits and Credits Summary <ul><li>Accounts that normally have debit balances are: </li></ul><ul><ul><li>assets, expenses, and revenues. </li></ul></ul><ul><ul><li>assets, expenses, and owner’s capital. </li></ul></ul><ul><ul><li>assets, liabilities, and owner’s drawings. </li></ul></ul><ul><ul><li>assets, owner’s drawings, and expenses. </li></ul></ul>Review Question LO 2 Define debits and credits and explain their use in recording business transactions.
    15. 15. Eg 1….. <ul><li>The owner starts the business with RM10,000 in cash on 1 August 20X8. </li></ul><ul><li>The effect… </li></ul>Credit the capital account 2. Increases the capital Debit the cash account 1. Increases the asset of cash Action Effect
    16. 16. Answer…
    17. 17. Eg 2….. <ul><li>A van is bought for RM4,500 cash on 2 August 20X8. </li></ul><ul><li>The effect… </li></ul>Credit the cash account 2. Decreases the asset of cash Debit the van account 1. Increases the asset of van Action Effect
    18. 18. Answer…
    19. 19. Eg 3….. <ul><li>Fixtures (e.g. shelves) are bought on credit from shop Fitters for RM1,250 on 3 August 20X8. </li></ul><ul><li>The effect… </li></ul>Credit the Shop Fitters account 2. Increases the liability of Shop Fitters. Debit the fixtures account 1. Increases the asset of fixtures Action Effect
    20. 20. Answer…
    21. 21. Eg 4….. <ul><li>Paid the amount owing to Shop Fitters in cash on 17 August 20x8. </li></ul><ul><li>The effect… </li></ul>Credit the cash account 2. Decreases the asset of cash. Debit the Shop Fixtures account 1. Decreases the liability of Shop Fitters Action Effect
    22. 22. Answer…
    23. 23. Combining all four transactions,
    24. 24. Answer…
    25. 25. REVIEW QUESTIONS a.Bought office machinery on credit from D Isaacs Ltd. b. The proprietor paid a creditor, C Jones, from his private funds. c. A debtor, N Fox, paid us in cash. d. Repaid part of loan from P Exeter by cheque. e. Returned some of office machinery to D Isaacs Ltd. f. A debtor, N Lyn, pays us by cheque. g. Bought van by cash. Account to be credited Account to be debited Complete the following table
    26. 26. End – Chapter 2

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