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Acc week 5 b


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Acc week 5 b

  1. 1. The Balance Sheet
  2. 2. Flowchart of Accounting Records Source Documents Journals Trading, Profit & Loss Acc Balance Sheet Ledgers Trial Balance
  3. 3. The Balance Sheet is prepared to show the financial position of the business with respect to its assets, liabilities and owner’s equity at that date.
  4. 4. Assets <ul><li>The assets of the business are what the business owns. They can be classified as: </li></ul><ul><li>Fixed assets – purchased for use in the business, are not for resale and can last for several accounting periods, e.g. machinery, furniture, motor vehicles, etc. </li></ul><ul><li>Current assets – easily liquidated, i.e. can be converted into cash during the operating cycle of a business, e.g. debtors, stock, cash and etc. </li></ul>
  5. 5. Liabilities <ul><li>Liabilities represent what the business owes its external creditors, they are classified according to their period of payment as follows: </li></ul><ul><li>Long-term liabilities – debts of the business which have a repayment period of more than one accounting period, e.g. loans and mortgages. </li></ul><ul><li>Current liabilities – short-term debts of the business that are usually settled within one accounting period, e.g. creditors and bank overdrafts </li></ul>
  6. 6. Owner’s Equity <ul><li>Represents what the business owes its owner. </li></ul><ul><li>Capital provided by the owner is treated as a loan to the business (accounting entity concept). </li></ul><ul><li>Represents the owner’s claim on the assets of the business after the external debts and obligations have met. </li></ul>
  7. 7. <ul><li>Increase in the owner’s equity can be brought about by: </li></ul><ul><li>Addition to capital </li></ul><ul><li>Net profit from the year’s business activities </li></ul><ul><li>Decrease in the owner’s equity can be brought about by: </li></ul><ul><li>Drawings from the business for the owner’s private use </li></ul><ul><li>Net loss from the year’s business </li></ul><ul><li>activities </li></ul>Owner’s Equity
  8. 8. Preparation of the Balance Sheet <ul><li>The Trial Balance of Chun as at 31 December 2002 is as follows: </li></ul>Trial Balance as at 31 December 2002 Dr (RM) Cr (RM) Capital, 1 January 2002 16,800 Drawings 260 Motor Vehicle 22,000 Fixture and Fittings 7,000 Stock, 31 December 2002 1,550 Creditors 5,750 Bank loan 8,000 Debtors 1,800 Cash at bank 2,500 Cash in hand 600 Profit and Loss Account 5,160
  9. 9. Balance Sheet as at 31 December 2002 RM RM RM RM Fixed Assets : Owner’s Equity : Motor Vehicle 22,000 Capital, 1 Jan 16,800 Fixture & Fittings 7,000 29,000 Add Net Profit 5,160 21,960 Current Assets : Less Drawings 260 Stock 1,550 Capital, 31 Dec 21,700 Debtors 1,800 Cash at bank 2,500 Long-term Liability Cash in hand 600 6,450 Bank loan 8,000 Current Liability : Creditors 5,750 35,450 35,450
  10. 11. Balance Sheet <ul><li>The Balance Sheet is not an account, so it has no debit or credit sides. </li></ul><ul><li>Assets are usually listed in the order in which they are readily converted into cash and liabilities are arranged according to the period in which they are discharged. </li></ul><ul><li>The balances listed in the Balance Sheet will become the opening balances of the next accounting period. </li></ul>
  11. 12. Lecture Exercise <ul><li>Prepare the Balance Sheet of A. Ali from the following balances as at 30 June 2002: </li></ul>(Balance $24,090) Capital, 1 July 2001 RM12,500 Net profit 4,680 Drawings 690 Cash in hand 500 Cash at bank 4,800 Debtors 3,660 Creditors 7,600 Stock in hand 1,960 Equipment 4,380 Motor vehicle 8,790
  12. 13. <ul><li>Ali </li></ul><ul><li>Balance Sheet as at 30 June 2002 </li></ul>RM RM Fixed Assets : Owner’s Equity : Equipment Motor vehicle 4,380 8,790 Beginning Capital 12,500 Add: Net Profit 4,680 Current Assets : 17,180 Stock, 31 Dec 1,960 Less: Drawings 690 debtors 3,660 Ending Capital 16,490 Cash at bank 4,800 Cash in hand 500 Current Liabilities : creditors 7,600 24,090 24,090
  13. 15. Lecture Exercise <ul><li>Determine the owner’s equity and prepare a Balance Sheet as at 31 December 2002. </li></ul>(OE $59,920 BS $149,150) Freehold premises RM100,000 Creditors 12,860 Debtors 15,000 Bank overdraft 10,370 Tools and equipment 26,000 Loan from Asia Bank 66,000 Stock of unsold goods 8,000 Cash in hand 150
  14. 16. Balance Sheet as at 31 December 2002 RM RM Fixed Assets Owner’s Equity : 59,920 Free hold premises 100,000 Tools &equip 26,000 Long term liabilities Loan from Asia Bank 66,000 Current Assets : Stock 8,000 Current Liabilities : Debtors 15,000 Trade creditors 12,860 Cash in hand 150 Bank overdraft 10,370 149,150 149,150
  15. 18. Comprehensive Exercise <ul><li>K Chen is a retailer and the following balances were extracted from his books on 31 Dec 2006: </li></ul><ul><li>Stock, 1 Jan 06 12,400 </li></ul><ul><li>Stock, 31 Dec 06 10,650 </li></ul><ul><li>Office equipment 17,900 </li></ul><ul><li>Trade debtors 14,670 </li></ul><ul><li>Trade creditors 26,700 </li></ul><ul><li>Capital 30,000 </li></ul><ul><li>Drawings 800 </li></ul><ul><li>Sales 49,600 </li></ul><ul><li>Purchases 34,040 </li></ul><ul><li>Carriage inwards 393 </li></ul><ul><li>Carriage outwards 465 </li></ul><ul><li>Return inwards 440 </li></ul><ul><li>Return outwards 550 </li></ul><ul><li>Rent and rates 8,800 </li></ul><ul><li>Wages and salaries 9,600 </li></ul><ul><li>Cash at bank 6,950 </li></ul><ul><li>Cash in hand 392 </li></ul>
  16. 19. Comprehensive Exercise (cont’...) <ul><li>You are required to prepare: </li></ul><ul><li>The Trial Balance as at 31 December 2006. </li></ul><ul><li>The Trading and Profit and Loss Account for the year ended 31 December 2006. </li></ul><ul><li>The Balance Sheet as at that date. </li></ul><ul><li>You are strongly encouraged to try both the traditional format and the vertical format. </li></ul>