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Topic 3

  1. 1. CHAPTER THREE : THE RECORDING PROCESS KAL1013 BBA EXEC.(T.HAJI)
  2. 2. Outline <ul><li>Characteristics of an account </li></ul><ul><li>The rules of Debit and Credit </li></ul><ul><li>The steps in recording process </li></ul><ul><li>The preparation of Trial Balance </li></ul>KAL1013 BBA EXEC.(T.HAJI)
  3. 3. The Books of Entry <ul><li>Journal : Prime entry book </li></ul><ul><li>Account : individual accounting record of increases or decreases in a specific item. </li></ul><ul><li>Ledger : Group of accounts </li></ul><ul><ul><li>General Ledger </li></ul></ul><ul><ul><li>Creditors Ledger / Accounts Payable </li></ul></ul><ul><ul><li>Debtors Ledger / Accounts Receivable </li></ul></ul><ul><li>Chart of Account : List of accounts </li></ul>KAL1013 BBA EXEC.(T.HAJI)
  4. 4. The Recording Process KAL1013 BBA EXEC.(T.HAJI) Documents Documents Documents Source Documents Journal Ledger Trial Balance (derived from transactions)
  5. 5. Journal KAL1013 BBA EXEC.(T.HAJI) Name of the journal Date Particular Folio Debit Credit
  6. 6. Account KAL1013 BBA EXEC.(T.HAJI) Name of the account Debit Credit Date Particular Folio Total Date Particular Folio Debit Credit Balance Name of the account T-Account Three Columns Account
  7. 7. The Rules of Debit and Credit <ul><li>Assets : </li></ul><ul><ul><ul><li>Debit => increase </li></ul></ul></ul><ul><ul><ul><li>Credit => decrease </li></ul></ul></ul><ul><li>Liabilities and Owner’s Equity : </li></ul><ul><ul><ul><li>Debit => Decrease </li></ul></ul></ul><ul><ul><ul><li>Credit => Increase </li></ul></ul></ul>KAL1013 BBA EXEC.(T.HAJI)
  8. 8. The Rules of Debit and Credit KAL1013 BBA EXEC.(T.HAJI) Debit Account Credit Increase in Assets Decrease in Assets Decrease in Liabilities Increase in Liabilities Decrease in Owner’s Equity Increase in Owner’s Equity Decrease in Revenue Increase in Revenue Increase in Expenses Decrease in Expenses
  9. 9. Expansion of Basic Equation KAL1013 BBA EXEC.(T.HAJI) Assets = Liabilities + Owner’s Equity Assets Liabilities Capital Drawings Revenue Expenses
  10. 10. Recording Transaction KAL1013 BBA EXEC.(T.HAJI) Transaction Debit Credit Started business with cash. Capital Cash Bought office equipment on credit from Syarikat Emas. Office Equipment Account Payable Received loan from Bank Intan in cash. Cash Bank Loan
  11. 11. KAL1013 BBA EXEC.(T.HAJI) Transaction Debit Credit Bought motor van by cash Motor Vehicle Cash Paid rental expenses by cash Rental Expenses Cash Bought office supplies by credit Office Supplies Account Payable
  12. 12. KAL1013 BBA EXEC.(T.HAJI) Transaction Debit Credit Paid utility bills with cash Utility Expenses Cash Received cash from Abu, a debtor. Cash Account Receivable A check on supplies showed that RM120 supplies has been used. Supplies Expenses Office Supplies
  13. 13. KAL1013 BBA EXEC.(T.HAJI) Transaction Debit Credit Owner brought in his own car to be used in business. Motor Vehicle Capital Sold motor van for cash Cash Motor Vehicle Owner took cash for his own use. Drawings Cash
  14. 14. Journal Entries KAL1013 BBA EXEC.(T.HAJI) Siti Malaysia, the owner of Tadika Malaysia started her business on 1 January 2002 with cash M25,000. The followings are transactions related to the business for the month of January: Illustration : Tadika Malaysia
  15. 15. Tadika Malaysia KAL1013 BBA EXEC.(T.HAJI) General Journal Date Particulars Debit Credit Jan. 1 C ash 25,000 C apital 25,000 ( Cash invested by owner )
  16. 16. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan. 5 Bought office equipment with cash, RM500. Jan. 5 Office Equipment 500 Cash 500 (Bought office equipment with cash) Date Particulars Debit Credit
  17. 17. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan.10 Bought furnitures amounting to RM4,700 with cash from Syarikat Perabot Kita. Jan. 10 Furnitures 4,700 Cash 4,700 ( Bought furnitures with cash ) Date Particulars Debit Credit
  18. 18. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan. 11 35,000 35,000 Date Particulars Debit Credit Jan.11 Bought motor van for business use by credit from Syarikat Kenderaan amounting to RM35,000. Motor vehicles Account Payable ( bought motor van by credit )
  19. 19. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan.15 Paid advertising expense RM2,000 with cash. Jan. 15 A dvertising expense 2,000 Cash 2,000 ( Paid advertising expense with cash ) Date Particulars Debit Credit
  20. 20. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan.18 Paid utility bills with cash amounting to RM325. Jan. 18 Utilities Expense 325 Cash 325 ( Paid utility bills with cash ) Date Particulars Debit Credit
  21. 21. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan.23 Paid salaries by cash RM700 per person for 5 workers. Jan. 23 Salary expense 3,500 Cash 3,500 ( Paid salary by cash ) Date Particulars Debit Credit
  22. 22. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan 24 Received cash RM7,500 for the fees of the month. Jan. 24 Cash 7,500 Revenue : Fees 7,500 ( received fees or the month ) Date Particulars Debit Credit
  23. 23. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan.27 Bought two units of computers on credit , amounting to RM4,000 per unit. Jan. 27 Office Equipment 8,000 Account Payables 8,000 ( Bought computers on credit ) Date Particulars Debit Credit
  24. 24. Tadika Malaysia- General Journal KAL1013 BBA EXEC.(T.HAJI) Jan.30 Siti Malaysia took cash RM1,200 for her own use. Jan. 30 Drawings 1,200 Cash 1,200 ( Cash withdrawals by the owner ) Date Particulars Debit Credit
  25. 25. Posting from journal to ledger KAL1013 BBA EXEC.(T.HAJI) Journal Ledger
  26. 26. What is ledger? <ul><li>Entire group of accounts maintained by the company which keeps in one place all the information about changes in specific account balances. </li></ul>KAL1013 BBA EXEC.(T.HAJI) E.g Office Equipment Jan 31 Bal c/f 8,500 Jan 5 Cash 500 27 A/c Payable8,000 8,500 8,500
  27. 27. General Ledger KAL1013 BBA EXEC.(T.HAJI) Cash Jan 1 Capital 25,000 Jan 5 Office Equipt 500 24 Fees Rec. 7,500 10 Furnitures 4,700 18 Utilities 325 15 Advertising 2,000 30 Drawings 1,200 23 Salary 3,500 Balance c/f 32,500 32,500 20,275 T-Account
  28. 28. KAL1013 BBA EXEC.(T.HAJI) Three Columns Cash Account Date Item Ref. Debit Credit Balance Debit Credit Jan1 Capital   25,000   25,000   5 OE     500 24,500   10 Furniture     4,700 19,800   15 A dvertising     2,000 17,800   18 Utilities     325 17,475   23 Salaries     3500 13,975   24 Fees Receivable   7,500   21,475   30 Drawings     1,200 20,275  
  29. 29. General Ledger KAL1013 BBA EXEC.(T.HAJI) Capital Jan 1 Cash 25,000 25,000 25,000 Jan 31 Bal c/f 25,000 T-Account Three Columns C apital Date Item Ref. Debit Credit Balance Debit Credit Jan 1 Cash 25,000 25,000
  30. 30. General Ledger KAL1013 BBA EXEC.(T.HAJI) Office Equipment Jan 31 Bal c/f 8,500 Jan 5 Cash 500 27 A/c Payable8,000 8,500 8,500 T-Account Three Columns Office Equipment Date Item Ref. Debit Credit Balance Debit Credit Jan 5 Cash 500 500 27 A/c Payable 8,000 8,500
  31. 31. General Ledger KAL1013 BBA EXEC.(T.HAJI) Furniture Jan 31 Bal c/f 4,700 Jan 10 Cash 4,700 4,700 4,700 T-Account Three Columns Furniture Date Item Ref. Debit Credit Balance Debit Credit Jan 10 Cash 4,700 4,700
  32. 32. General Ledger KAL1013 BBA EXEC.(T.HAJI) Motor Vehicles Jan 11 A/c Payable 35,000 Jan 31 Bal c/f 35,000 35,000 35,000 T-Account Three Columns Motor Vehicles Date Item Ref. Debit Credit Balance Debit Credit Jan 11 A/c Payable 35,000 35,000
  33. 33. General Ledger KAL1013 BBA EXEC.(T.HAJI) Account Payable Jan 31 Bal c/f 43,000 Jan 11 M. Vehicles 35,000 27 O. Equipmt 8,000 43,000 43,000 T-Account Three Columns Account Payable Date Item Ref. Debit Credit Balance Debit Credit Jan 11 M.Vehicles 35,000 35,000 27 Office Equipment 8,000 43,000
  34. 34. General Ledger KAL1013 BBA EXEC.(T.HAJI) Advertising Jan 31 Bal c/f 2,000 Jan 15 Cash 2,000 2,000 2,000 T-Account Three Columns A dvertising Date Item Ref. Debit Credit Balance Debit Credit Jan 15 Cash 2,000 2,000
  35. 35. KAL1013 BBA EXEC.(T.HAJI) Utility Jan 18 Cash 325 Jan 31 Bal c/f 325 325 325 General Ledger T-Account Three Columns Utility Date Item Ref. Debit Credit Balance Debit Credit Jan 18 Cash 325 325
  36. 36. KAL1013 BBA EXEC.(T.HAJI) Salaries Jan 31 Bal c/f 3,500 Jan 23 Cash 3,500 3,500 3,500 General Ledger T-Account Three Columns Salaries Date Item Ref. Debit Credit Balance Debit Credit Jan 23 Cash 3,500 3,500
  37. 37. KAL1013 BBA EXEC.(T.HAJI) Fees Received Jan 24 Cash 7,500 Jan 31 Bal c/f 7,500 7,500 7,500 General Ledger T-Account Three Columns Fees Received Date Item Ref. Debit Credit Balance Debit Credit Jan 24 Cash 7,500 7,500
  38. 38. KAL1013 BBA EXEC.(T.HAJI) Drawings Jan 30 Cash 1,200 1,200 1,200 Jan 31 Bal c/f 1,200 General Ledger T-Account Three Columns Drawings Date Item Ref. Debit Credit Balance Debit Credit Jan 24 Cash 1,200 1,200
  39. 39. The Trial Balance KAL1013 BBA EXEC.(T.HAJI) A list of accounts and their balances at a given time. The purpose: to prove that the debits equal the credits after posting. If the debits and credits do not agree, it is a sign of error that occurs during journalizing and posting.
  40. 40. KAL1013 BBA EXEC.(T.HAJI) Tadika Malaysia Trial Balance as at 31 January 2002 Accounts Debit Credit Cash 20,275 Capital 25,000 Office Equipment 8,500 Furniture 4,700 Motor Vehicles 35,000 Account Payables 43,000 Advertising 2,000 Utility 325 Salaries 3,500 Fees Received 7,500 Drawings 1,200 75,500 75,500
  41. 41. The Trial Balance : Errors <ul><li>Errors affecting trial balance </li></ul><ul><li>Errors not affecting trial balance </li></ul>KAL1013 BBA EXEC.(T.HAJI)
  42. 42. Errors affecting trial balance <ul><li>Omission of part of an entry </li></ul><ul><li>Errors of transposition </li></ul><ul><li>Errors in addition in the ledger accounts </li></ul><ul><li>Posting to incorrect sides of accounts </li></ul><ul><li>Errors in trial balance </li></ul>KAL1013 BBA EXEC.(T.HAJI)
  43. 43. Errors not affecting trial balance <ul><li>Error of omission </li></ul><ul><li>Error of commission </li></ul><ul><li>Error of principle </li></ul><ul><li>Complete reversal of entries </li></ul><ul><li>Compensating errors </li></ul><ul><li>Errors of original entries </li></ul>KAL1013 BBA EXEC.(T.HAJI)
  44. 44. KAL1013 BBA EXEC.(T.HAJI) Thank You

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