BACHELOR OF BUSINESS ADMINISTRATION WITH HONOURS

SEMESTER SEPTEMBER 2014

BBAW2103
FINANCIAL ACCOUNTING

MATRICULATION NO :

791016145081001

IDENTITY CARD NO.

TELEPHONE NO. :

019-6641264

E-MAIL

arman_saad@yahoo.com

LEARNING CENTRE

BBAW2103

791016-14-5081

Page 1

SHAH ALAM

TABLE OF CONTENTS

PAGE

Question 1

3-8

Question 2

9-12

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Page 2

QUESTION 1
A) Prepare the jurnal entries and adjusting entries for each of above situation

Journal Entry

a)
i

Date
01/02/14
Date
28/02/14

Date
01/10/13

Description

Reference

Rental Prepayment
Cash

Debit
(RM)
3,200

Credit
(RM)
3,200

Description
Rental Expenses
Rental Prepayment

Reference

Description

Reference

Insurance Prepayment
Cash

Debit (RM) Credit (RM)

800
800
Debit
(RM)
4,800

Credit
(RM)
4,800

a)ii

Date
Description
31/05/14 Insurance Expenses
Insurance Prepayment

Reference

Debit (RM) Credit (RM)

3,200
3,200

Date
01/08/13

Description

Reference

Investment
Cash

Debit
(RM)

Credit
(RM)

200,000
200,000

a)iii

Date

Description

31/12/13

Retained Earning
Dividend Payable

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Reference

Debit
(RM)

Credit
(RM)

30,000
30,000
Page 3

Date
01/02/14

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Description

Reference

Dividend Payable
Cash

Debit
(RM)

Credit
(RM)

30,000
30,000

Page 4

A) Prepare the jurnal entries and adjusting entries for each of above situation
Adjusting Entry

a) i
Rental Prepayment Account
RM
01/02/2014

Cash

3,200

Balance

2,400

25/02/2014

RM
Rental expenses

Rental Expenses
RM
28/02/2014

800

RM

Rental
Prepayment 800

a) ii
Insurance Prepayment Account
RM
01/10/2013

Cash

4,800

31/05/2014

RM
Insurans Expenses
Balance

3,200
1,600

a) iii
Investment Account
RM
Original Cost

200,000

Equity Accrual

17,500

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Dividend
(200,000 x 0.15 x 5/12)

Page 5

RM
12,500

QUESTION 1

B) Explain the relevan accounting principle that is applied in the above

adjusting entries
Before financial statements are prepared, additional journal entries, called adjusting entries, are
made to ensure that the company's financial records adhere to the revenue recognition and
matching principles. Adjusting entries are necessary because a single transaction may affect
revenues or expenses in more than one accounting period and also because all transactions have
not necessarily been documented during the period.
There are two principle of accounting that are satisfied by adjusting process

1- To make sure all revenue had been recorded, to record every transaction that were
earned this period, this called the revenue recognition principle. The revenue
recognition says that we must record all revenue in the period that were earned
regardless of whether the cash has been received
2- To match all expenses that incurred in period to the revenue earned in this period.
This is called matching principle, some expenses such rental expenses are involve to
paying cash for expenses .Similarly using up insurance are considered expenses in the
adjusting process.

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C) Discuss the effect on the investors decision making process if the

accounting information are not adjusted.
The objective of a general purpose financial report is to provide financial information
about the reporting entity that is useful to present and potential investors in making
decisions in their capacity as capital providers. The investor is interested in financial
information because that information is useful in making decisions that equity investors
make in their capacity as capital providers. If the accounting information is not adjusted,
it will effect to investors as follows:
1) Investor would not be able to take the responsibility is estimating the value or stocks,
bonds or other securities issues by the entity and thus these securities would not be
issued or traded easily.
2) Information is material if its omission or misstatement could inuence the decisions
that investor make on the basis of an entitys nancial information. Because
materiality depends on the nature and amount of the item judged in the particular
circumstances of its omission or misstatement, it is not possible to specify a uniform
quantitative threshold at which a particular type of information becomes material.
When considering whether nancial information is a faithful representation of what it
purports to represent, it is important to take into account materiality because material
omissions or misstatements will result in information that is incomplete, biased, or
not free from error. Financial reporting imposes costs; the benets of nancial
reporting should justify those costs. Assessing whether the benets of providing
information justify the related costs will usually be more qualitative than quantitative.
In addition, the qualitative assessment of benets and costs often will be incomplete.
The costs of providing information include costs of collecting and processing the
information. Financial reporting imposes costs; the benets of nancial reporting
should justify those costs. Assessing whether the benets of providing information
justify the related costs will usually be more qualitative than quantitative. In addition,
the qualitative assessment of benets and costs often will be incomplete. The costs of
providing information include costs of collecting and processing the information.

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Omissions of Adjustments in Accounting

Omitting Deferred Revenue Entries
If a company omits a deferred revenue adjusting entry, both the income statement and balance
sheet appear incorrect. For example, when the company receives a deposit from a customer, it
increases the Unearned Revenue account by the amount of the deposit and increases Cash.
Unearned Revenue represents a liability because the company owes a service to the customer. At
the end of the month, the company evaluates how much of the service it provided and should
record an adjusting deferral entry. This entry would increase Revenue and decrease Unearned
Revenue. If the company omits the deferral adjusting entry, the revenue remains too low and the
liability remains too high.
Omitting Accrued Revenue Entries
If a company omits an accrued revenue adjusting entry, both the income statement and balance
sheet appear incorrect. For example, when the company provides a service to a client, it may not
expect payment until after it bills the client in the following month. At the end of the month, the
company evaluates how much of the service it provided and should record an adjusting accrual
entry. This entry would increase Revenue and increase Accounts Receivable, an asset. If the
company omits the accrual adjusting entry, the revenue remains too low and the assets remain
too low.
Omitting Deferred Expense Entries
If a company omits a deferred expense adjusting entry, both the income statement and balance
sheet appear incorrect. For example, when the company pays a deposit to a vendor, it increases
the Prepaid Services account by the amount of the deposit and decreases Cash. Prepaid Services
represents an asset because the vendor now owes a service to the company. At the end of the
month, the company evaluates how much of the service it received and should record an
adjusting deferral entry. This entry would increase the Expense account and decrease Prepaid
Services. If the company omits the deferral adjusting entry, the expenses remain too low and the
assets remain too high.
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Omitting Accrued Expense Entries

If a company omits an accrued expense adjusting entry, both the income statement and balance
sheet appear incorrect. For example, at the end of the month, the company knows it used the
electricity all month even though the bill will not arrive until the following month. The company
should evaluate how much of the electricity it used and record an adjusting accrual entry. This
entry would increase the Utilities Expense account and decrease Accounts Payable. If the
company omits the accrual adjusting entry, the revenue remains too high and the liabilities
remain too low.

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QUESTION 2
a)
Trial Balance As At 31 December 2013
Description
Cash

Debit
350,000

Account Receivable

87,000

Prepaid Rent

32,000

Prepaid Insurance

16,000

Office Equipment

83,000

Office Supplies

8,000

Credit

Account Payable

44,000

Capital

88,000

Service Revenue

672,000

Utility Expense

24,000

Rent Expense

96,000

Salary Expense

124,000

Unearned Service Revenue

TOTAL

16,000
820,000

820,000

b) I)
Description
Dr. Depreciation Office
Equipment
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Cr. Acc Depreciation

Reference

Page 10

Debit
(RM)
16,600

Credit
(RM)

16,600

ii)
Description

Reference

Dr. Unearned Service Revenue

Cr. Service Revenue

Debit
(RM)
4,000

Credit
(RM)
4,000

iii)
Description

Reference

Dr. Office Supplier Expense

Cr. Office Supplies

Debit
(RM)
1,000

Credit
(RM)
1,000

iv)
Description

Reference

Dr. Utility Expense

Cr. Utility Payable

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Debit
(RM)
1,600

Credit
(RM)
1,600

Page 11

v)
Description

Reference

Dr. Salary Expense

Cr. Salary Accrued

Debit
(RM)
22,000

Credit
(RM)
22,000

vi)
Description

Reference

Dr. Insurance Expense

Cr. Prepaid Insurance

Debit
(RM)
4,000

Credit
(RM)
4,000

vii)
Description

Reference

Dr. Prepaid Rent Account

Cr. Cash
Description

Reference

Debit
(RM)
56,000

Credit
(RM)
56,000

Reference

Dr. Rent Account

Cr. Prepaid Rent Account

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Credit
(RM)
32,000

Dr. Prepaid Rent Account

Cr. Cash
Description

Debit
(RM)
32,000

Debit
(RM)
8,000

Credit
(RM)
8,000

Page 12

c)
Adjusted Trial Balance As At 31 December 2013
Description
Depreciation O. Equipment
Accumulated Depreciation
Unearned Service Revenue
Cash
Office Supplies
Utility Expenses
Service Revenue
Office Supplies Expenses
Utility Payable
Salary Expenses
Salary Accrued
Prepaid Insurance
Insurance Expense
Prepaid Rent Account
Rent Account Expense
Account Receivable
Office Equipment
Account Payable
Capital
Service Revenue
Rent Expenses
TOTAL

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Debit
16,600

Credit
16,600
12,000

350,000
7,000
25,600
4,000
1,000
1,600
146,000
22,000
4,000
4,000
56,000
8,000
87,000
83,000
44,000
88,000
672,000
96,000
872,200

Page 13

872,200