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Acc week 4


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Acc week 4

  1. 1. Recording of Business Transactions – Books of Original Entry Week 4
  2. 2. In Your Textbook... <ul><li>Roshayani Arshad, et al. (2007), Financial Accounting An Introduction , 2 nd Edition, Malaysia, McGraw Hill . </li></ul><ul><li>Chapter 4: Accounting Cycle (pp. 47 – 54) </li></ul><ul><li>Chapter 6: Books of Prime Entry and Subsidiary Ledger </li></ul><ul><li>(pp. 83 – 90) </li></ul><ul><li>Chapter 10: Cash (pp. 180 – 184, 191) </li></ul>
  3. 3. Journals <ul><li>Journals are books in which information from source documents is first recorded. </li></ul><ul><li>Also called books of original entry, or books of prime entry. </li></ul><ul><li>Can be classified as: </li></ul><ul><li>1. Specialised journals </li></ul><ul><li>2. General journal </li></ul>
  4. 4. The General Journal <ul><li>The format of a General Journal: </li></ul>General Journal $ $ The name of the account to be debited The name of the account to be credited The narrative Cr Dr Particulars Date
  5. 5. Recording into General Journal <ul><li>E.g. Andrew contributed RM100 to start his business. </li></ul>
  6. 6. Computerised General Journal
  7. 7. Purchases Journal The purchases journal is designed for recording all purchases on credit.
  8. 8. Returns Outwards Journal <ul><li>To record returned goods that are previously bought on credit. </li></ul><ul><li>Also used to record a reduction of invoice price resulting from previous overcharging in the invoice sent by the supplier. </li></ul><ul><li>Source document: Credit note from supplier acknowledging the receipt of returned items or the reduction given. </li></ul>
  9. 9. Sales Journal The sales journal is designed for recording all sales of goods on credit.
  10. 10. Returns Inwards Journal <ul><li>To record goods previously sold on credit and then returned by the customer. </li></ul><ul><li>Also records allowances or reductions in the customers’ account due to overcharging in previous invoices. </li></ul><ul><li>Source document: Credit note sent to customer to acknowledge goods returned or mistake made in previous invoice. </li></ul>
  11. 11. Posting from the Journals <ul><li>Posting is the process of transferring information from one book to another. </li></ul><ul><li>To post information from the journal to the ledger, journal entries are transferred to their respective debits and credits in the various accounts in the ledger. </li></ul>Journal Ledger Posting
  12. 12. Ledger <ul><li>A collection of all accounts kept by the business. </li></ul><ul><li>General ledger: Consists of accounts other than debtors’ and creditors’ accounts. </li></ul><ul><li>Subsidiary ledger: </li></ul><ul><li>1. Sales or Debtors Ledger - consists of individual debtors’ accounts </li></ul><ul><li>2. Purchases or Creditors Ledger - consists of individual creditors’ accounts </li></ul>
  13. 13. Posting from the General Journal
  14. 14. Record the following transactions into the general journal and post them to the ledger. Cash sales RM7,500. 27 Paid Enza Trading RM1,500 by cheque. 26 Paid electricity in cash RM250. 20 Paid wages in cash RM800. 12 Paid rental of office space by cheque RM500. 8 Cash sales generated amounting to RM1,500. 6 Bought goods from Enza Trading on credit RM4,700. 4 Bought equipment for RM8,200 cash. 3 Owner began operation with RM20,000 cash as capital. 1 June
  15. 15. 20,000 20,000 Cash Capital June 1 7,500 7,500 Cash Sales 27 1,500 1,500 A/C Payable- Enza Trading Bank 26 250 250 Electricity Cash 20 800 800 Wages Cash 12 500 500 Office rental Bank 8 1,500 1,500 Cash Sales 6 4,700 4,700 Purchase A/C Payable- Enza Trading 4 8,200 8,200 Equipment Cash 3 Credit(RM) Debit(RM) Particular Date
  16. 16. Chart of Accounts <ul><li>A list of all accounts tracked by a single accounting system. </li></ul><ul><li>Each account in the chart is assigned a unique identifier, typically an account number. </li></ul><ul><li>It places the five groups of accounts into an order to assist in locating ledger accounts. </li></ul>
  17. 17. Chart of Accounts - Example Drawings 403 Electricity 206 Net profit 402 Manager’s salary 205 Capital 401 Commission 204 Owner’s Equity 401-500 Rent paid 203 Rent revenue 303 Purchase returns 202 Discount revenue 302 Purchases 201 Sales 301 Expenses 201-300 Revenue 301-400 Accounts Receivable 4 Accounts Payable 103 Plant and machinery 3 Loan by mortgage 102 Petty cash 2 Bank overdraft 101 Cash at bank 1 Liabilities 101-200 Assets 1-100
  18. 18. Take A Break! <ul><li>Mr. A: “How is your son doing in accounting class?” </li></ul><ul><li>Mr. B: “Great. Now instead of asking us for his allowance. He bills us for it.” </li></ul>
  19. 19. Cash
  20. 20. <ul><li>Many companies need several cash accounts to account for different cash categories and funds. </li></ul><ul><li>Most companies have multiple bank accounts. The title for each bank account should be: Cash in Bank — (Name of Bank) </li></ul><ul><li>Internal controls to protect cash from theft and misuse of cash. </li></ul>Control Over Cash
  21. 21. Retailers’ Sources of Cash Cash Receipts CASHIER’S DEPARTMENT ACCOUNTINGDEPARTMENT Register records Remittance advices Mail Receipts
  22. 22. 1 ACCOUNTINGDEPARTMENT CASHIER’S DEPARTMENT Retailers’ Sources of Cash Deposit ticket Bank Deposit receipt
  23. 23. Cash and Bank Accounts <ul><li>A cash transaction involves money kept at the office will be recorded in the Cash Account. </li></ul><ul><li>A cash transaction involves money kept in the current account at the bank will be recorded in the Bank Account. </li></ul><ul><li>Both are asset accounts. Increase = debit side, decrease = credit side. </li></ul>
  24. 24. Cash and Bank Accounts Payments with office cash Receipts of cash kept in the office Dr Cash Account Cr Payments with cheques from the current account at the bank Receipts of cash and cheques banked into the current account at the bank Dr Bank Account Cr
  25. 25. Cash Book <ul><li>The cash book is part of the ledger but it contains only two accounts: the Cash Account and the Bank Account. </li></ul><ul><li>Also serves as a book of original entry where information from source docs is recorded straight into the Cash Book. </li></ul>
  26. 26. Cash Book <ul><li>A Cash Book has columns for date, particulars, folio, discount, cash and bank, on both debit and credit sides. </li></ul><ul><li>The cash column represents the Cash Account while the bank column represents the Bank Account. </li></ul><ul><li>The discount column on the debit side represents Discount Allowed, while credit side represents Discount Received. </li></ul><ul><li>The debit side records all receipts and the credit side records all payments. </li></ul>Bank Cash Disct F Details Date Bank Cash Disct F Details Date Cr. Cash Book Dr.
  27. 27. Cash Discount <ul><li>A deduction from the amount due. </li></ul><ul><li>Given to encourage prompt </li></ul><ul><li>payment of debts. </li></ul><ul><li>Cash discount is made known to the customer in the invoice issued when goods are sold on credit. </li></ul><ul><li>Example terms: 5% 7 days; 3% 30 days </li></ul>
  28. 28. Cash Discount - Discount Allowed <ul><li>The cash discount given by the trader to his customer is considered a cost to the trader because he receives a smaller amount than what is owed to him. </li></ul><ul><li>Example: </li></ul><ul><li>Jun 10 Sold goods to Kay on credit RM400. </li></ul><ul><li>Terms of payment: 10% 14 days. </li></ul><ul><li> 20 Kay paid for the amount owed by </li></ul><ul><li>cheque and received a cash discount of </li></ul><ul><li>10%. </li></ul>
  29. 29. Discount Allowed (Example) Dr Kay Cr Amt Particulars Date Amt Particulars Date 360 40 Bank Discount allowed Jun 20 400 Sales Jun 10 360 Kay Jun 20 Amt Particulrs Date Amt Particulars Date Dr Bank Account Cr Dr Discount Allowed Account Cr Amt Particulars Date Amt Particulars Date 40 Kay Jun 10
  30. 30. Cash Discount - Discount Received <ul><li>When a trader receives a cash discount from his supplier, he pays less than what he owes. </li></ul><ul><li>The cash discount received is a gain and is credited to the Discount Received Account. </li></ul><ul><li>The Discount Received Account is a revenue account and the gains add to the profits of the business. </li></ul>
  31. 31. Discount Received (Example) <ul><li>Jun 4 Bought goods on credit from Major RM900. </li></ul><ul><li> 9 Paid Major RM855 by cheque, having deducted RM45 </li></ul><ul><li>cash discount. </li></ul>Dr Major Cr Amt Particulars Date Amt Particulars Date 900 Purchases Jun 4 855 45 Bank Discount received Jun 9
  32. 32. Discount Received (Example) 855 Major Jun 9 Amt. Particulars Date Amt. Particular Date Dr Bank Account Cr Dr Discount Received Account Cr Amt Particulars Date Amt Particulars Date 45 Major Jun 9
  33. 33. Trade Discount <ul><li>Trade discount – a deduction off the list or catalogue price of goods given by one trader when he sells to another trader. </li></ul><ul><li>The amount of trade discount given will depend on: </li></ul><ul><li>1. The quantity of goods purchased </li></ul><ul><li>2. The regularity of purchase </li></ul><ul><li>3. The nature of goods </li></ul>
  34. 34. Dishonoured Cheques <ul><li>A cheque received from a customer may, when presented to the bank, be refused payment or dishonoured because: </li></ul><ul><li>1. the drawer may not have enough money in his </li></ul><ul><li> Current Account; </li></ul><ul><li>2. the cheque may be post-dated; or </li></ul><ul><li>3. the cheque may contain errors (e.g. signature </li></ul><ul><li> missing, amount written wrongly, and etc.) </li></ul><ul><li>When this happens, the trader will be informed and his books must be adjusted to cancel the entries made earlier. </li></ul>
  35. 35. Dishonoured Cheques (Example) <ul><li>2005 </li></ul><ul><li>Apr 1 Joe owed RM150. </li></ul><ul><li>3 Joe paid RM135 in full settlement of his account. </li></ul><ul><li> 9 Joe’s cheque was returned by the bank marked “Insufficient </li></ul><ul><li>funds”. </li></ul>RM 135 RM Joe (cheque dishonoured) 2005 Apr 9 RM 135 RM RM 15 Joe 2005 Apr 3 Bank Cash Disc. Part. Date Bank Cash Disc. Part. Date Dr Cash Book Cr
  36. 36. Dishonoured Cheques (Example) Dr Joe Cr Amt Folio Particulars Date Amt Folio Particulars Date RM 135 15 Bank Discount allowed Apr 3 RM 150 135 15 Balance b/d Bank (cheque dishonoured) Discount allowed (withdrawn) 2005 Apr 1 9 Dr Discount Allowed Account Cr Amt Folio Particulars Date Amt Folio Particulars Date RM 15 Joe (cheque dishonoured) 2005 Apr 9 RM … Sundries 2005 Apr 30
  37. 37. Bank Overdraft <ul><li>The debit balance of the Bank Account shows the amount available in the current account. </li></ul><ul><li>The Bank Account can have a credit balance when the trader overdraws from his current account (overdraft facility with the bank). </li></ul><ul><li>The company is only allowed to overdraw up to a certain amount and he has to pay interest on the amount overdrawn. </li></ul>
  38. 38. Bank Overdraft (Example) <ul><li>2005 </li></ul><ul><li>Jan 1 Yang’s Bank Account shows a debit balance of RM500. </li></ul><ul><li>5 Yang’s application for an overdraft facility of up to </li></ul><ul><li>RM10,000 is approved by the bank. </li></ul><ul><li>10 Yang paid a cheque of RM4,500 to purchase office equipment. </li></ul>RM 4,500 RM Office equipment 2005 Jan 10 RM 500 RM RM Bal b/d 2005 Jan 1 Bank Cash Folio Part. Date Bank Cash Folio Part. Date Dr Cash Book Cr
  39. 39. Bank Overdraft <ul><li>In the case where a company overdraws his Current Account, any money paid into the company’s Current Account will be debited to the bank column in the Cash Book and hence will reduce or cancel the overdraft. </li></ul>
  40. 40. Bank Loan <ul><li>A form of finance obtained from a bank, to be repaid with interest on or before a fixed date </li></ul><ul><li>A separate Loan Account is opened to record loan from the bank or other people. </li></ul><ul><li>Double-entry: </li></ul>Dr. Bank Account Cr. Loan Account
  41. 41. Interest on Bank Loan <ul><li>Interest on a bank loan is accounted separately from the principal amount of the loan. </li></ul><ul><li>Double-entry for interest paid: </li></ul>Dr. Interest Expense Account Cr. Bank Account
  42. 42. Petty Cash
  43. 43. Petty Cash <ul><li>Petty cash fund is kept for the purpose of paying minor expenses. </li></ul><ul><li>Usually held under control of the petty cashier to meet daily small expenditure. </li></ul>Can you think of examples of expenses that might be paid from petty cash?
  44. 44. Petty Cash Book             Cash received   Oct 1 46.50             Balance b/d     53.50         100.00         100.00         53.50   Balance c/d       7.00 9.50 10.00 20.00 46.50   TOTAL         8.00     8.00 12 Taxi fare 12 Sep 30     1.50     1.50 11 MRT fare 12 Sep 24   7.00       7.00 10 Teabags/Coffee 6 Sep 17       10.00   10.00 9 Stapler 13 Sep 9         20.00 20.00 8 Stamps 12 Sep 4               Cash received 8 Sep 1 100.00 Misc- ellaneous $ Fare $ Stationery $ Postage $ Total Paymnt $ Voucher No. Details Fol Date Received $ Payment Analysis             PETTY CASH BOOK