Introduction Notes and Questions 2016 PDF

ACCOUNTING
INTRODUCTION
NOTES
AND
QUESTIONS
CONTENTS
TOPIC PAGE
SECTION ONE BASIC BUSINESS PRINCIPLES .................. 4

What Is Accounting? ......................................................................................................... 4
Users Of Accounting Information ....................................................................................... 4
Exercise 1.1 .................................................................................................................................... 4
Forms Of Business Ownership .......................................................................................... 5
Features Of A Sole Proprietor ........................................................................................... 6
Business Assets And Liabilities ......................................................................................... 7
Exercise 1.2 .................................................................................................................................... 8
Exercise 1.3 .................................................................................................................................... 8
The Basic Accounting Equation......................................................................................... 9
The Relationship Between The Statement Of Financial Position (Balance Sheet) And The
Accounting Equation ......................................................................................................... 9
The Statement Of Financial Position (Balance Sheet) ..................................................... 10
Exercise 1.4 .................................................................................................................................. 12
Exercise 1.5 .................................................................................................................................. 13
SECTION TWO ACCOUNTING CONCEPTS ...................... 14

Monetary Measurement .................................................................................................. 14
The Accounting Entity Concept ....................................................................................... 14
The Period Reporting Concept ........................................................................................ 14
Exercise 2.1 .................................................................................................................................. 15
Exercise 2.2 .................................................................................................................................. 15
The Concept Of Historical Cost ....................................................................................... 17
The Concept Of Going Concern ...................................................................................... 17
SECTION THREE ASSETS & LIABILITIES ....................... 18

Classifying Assets And Liabilities .................................................................................... 18
Exercise 3.1 .................................................................................................................................. 21
Exercise 3.2 .................................................................................................................................. 22
Identifying Assets And Liabilities ..................................................................................... 23
Exercise 3.3 .................................................................................................................................. 24
Exercise 3.4 .................................................................................................................................. 25
SECTION FOUR INCOME, EXPENSES & PROFIT ............. 26

Classifying Income And Expenses .................................................................................. 27
Exercise 4.1 .................................................................................................................................. 29
Identifying Income And Expenses ................................................................................... 30
Exercise 4.2 .................................................................................................................................. 31
Exercise 4.3 .................................................................................................................................. 32
Exercise 4.4 .................................................................................................................................. 34
Exercise 4.5 .................................................................................................................................. 35
PAGE 1
SECTION FIVE EQUITY .................................................... 37
Statement Of Changes In Equity ..................................................................................... 37
Exercise 5.1 .................................................................................................................................. 38
Exercise 5.2 .................................................................................................................................. 38
Exercise 5.3 .................................................................................................................................. 39
Exercise 5.4 .................................................................................................................................. 40
Exercise 5.5 .................................................................................................................................. 40
Exercise 5.6 .................................................................................................................................. 41
Exercise 5.7 .................................................................................................................................. 42
SECTION SIX EXPANDED EQUATION AND PROCESSING 43

The Expanded Accounting Equation ............................................................................... 43
The Accounting Process In A Manual Accounting System .............................................. 44
Trading Businesses......................................................................................................... 44
Recording Transactions On The Accounting Equation .................................................... 45
Analysing Transactions Into Debit And Credit ................................................................. 45
Exercise 6.1 .................................................................................................................................. 45
Exercise 6.2 .................................................................................................................................. 46
Exercise 6.3 .................................................................................................................................. 47
Exercise 6.4 .................................................................................................................................. 48
Exercise 6.5 .................................................................................................................................. 49
Ledger Accounts – “T” Form............................................................................................ 50
Recording Balances In The General Ledger.................................................................... 52
Exercise 6.6 .................................................................................................................................. 53
Exercise 6.7 .................................................................................................................................. 54
Exercise 6.8 .................................................................................................................................. 56
Balancing A Ledger Account ........................................................................................... 58
Exercise 6.9 .................................................................................................................................. 59
The Trial Balance ............................................................................................................ 63
T-Format ....................................................................................................................................... 63
Modern ......................................................................................................................................... 63
The Trial Balance And Errors ....................................................................................................... 64
Exercise 6.10 ................................................................................................................................ 65
General Journal To General Ledger ................................................................................ 68
Exercise 6.11 ................................................................................................................................ 69
Exercise 6.12 ................................................................................................................................ 71
SECTION SEVEN GOODS AND SERVICES TAX ................ 73

Collection Of GST ........................................................................................................... 73
Calculating Goods And Services Tax .............................................................................. 74
Exercise 7.1 .................................................................................................................................. 75
Exercise 7.2 .................................................................................................................................. 75
Exercise 7.3 .................................................................................................................................. 76
Recording Transactions With GST .................................................................................. 77
Exercise 7.4 .................................................................................................................................. 78
Remember: Analysing Transactions For Recording ........................................................ 81
Exercise 7.5 .................................................................................................................................. 82
Exercise 7.6 .................................................................................................................................. 84
Exercise 7.7 .................................................................................................................................. 88
Exercise 7.8 .................................................................................................................................. 91
PAGE 2
SECTION EIGHT FINANCIAL STATEMENTS .................... 93
Exercise 8.1 .................................................................................................................................. 93
How Does A Trading Business Make A Profit? ................................................................ 93
Cost Of Goods Sold ........................................................................................................ 94
Net Sales ........................................................................................................................ 94
Perpetual Inventory System ............................................................................................ 95
Exercise 8.2 .................................................................................................................................. 97
Exercise 8.3 .................................................................................................................................. 97
Fully Classified Financial Statements For A Trading Business ........................................ 98
Fully Classified Income Statement For A Trading Business ............................................ 99
Fully Classified Statement Of Financial Position (Balance Sheet) For A Trading
Oranisation.................................................................................................................... 100
Exercise 8.4 ................................................................................................................................ 101
Exercise 8.5 ................................................................................................................................ 106
Exercise 8.6 ................................................................................................................................ 111
Exercise 8.7 ................................................................................................................................ 116
SECTION NINE BALANCE DAY ADJUSTMENTS .............. 121

Related Accounting Concepts ....................................................................................... 121
The Accounting Process With Balance Day Adjustments .............................................. 122
Bad Debts And Allowance For Doubtful Debts .............................................................. 123
Exercise 9.1 ................................................................................................................................ 127
Exercise 9.2 ................................................................................................................................ 128
Exercise 9.3 ................................................................................................................................ 129
Increasing The Allowance For Doubtful Debts............................................................... 130
Exercise 9.4 ................................................................................................................................ 130
Exercise 9.5 ................................................................................................................................ 132
Exercise 9.6 ................................................................................................................................ 133
Depreciation Of Property, Plant And Equipment ............................................................ 135
Exercise 9.7 ................................................................................................................................ 140
Exercise 9.8 ................................................................................................................................ 143
Exercise 9.9 ................................................................................................................................ 146
Exercise 9.10 .............................................................................................................................. 147
Exercise 9.11 .............................................................................................................................. 149
Exercise 9.12 .............................................................................................................................. 152
Other Balance Day Adjustments ................................................................................... 155
Balance Day Adjustments - Summary ........................................................................... 157
Adjusting Existing Assets Or Liabilities .......................................................................... 161
Recognising New Assets Or Liabilities .......................................................................... 161
Exercise 9.13 .............................................................................................................................. 162
Exercise 9.14 .............................................................................................................................. 164
Exercise 9.15 .............................................................................................................................. 168
Exercise 9.16 .............................................................................................................................. 172
Exercise 9.17 .............................................................................................................................. 174
Exercise 9.18 .............................................................................................................................. 178
Exercise 9.19 .............................................................................................................................. 181
Financial Performance Reflected By Accrual Accounting .............................................. 184
Exercise 9.20 .............................................................................................................................. 184
Fully Classified Financial Statements With Balance Day Adjustments........................... 187
Exercise 9.21 .............................................................................................................................. 187
Exercise 9.22 .............................................................................................................................. 193
Goals Checklist - Are You Able To Do The Following? ... 198
Bibliography ..................................................................... 198
PAGE 3
SECTION ONE BASIC BUSINESS PRINCIPLES
WHAT IS ACCOUNTING?
Accounting is the collection, analysis and communication of economic information.
This information is used for decision–making, planning and control.
Accounting is communicating financial information so that users can make

decisions.
USERS OF ACCOUNTING INFORMATION

The users of accounting information fall into two categories: internal users and
external users. Internal users are those people inside the business. External users
are those people outside the business.
Users of accounting information will also use non-financial information when making
decisions. 供应商
Examples of financial information are the profit that the business has made or the
amount of cash it has available to meet expenses and pay debts. A supplier would
want to be paid, and an employee would also like to know they are going to be paid
or get a pay rise. Each user will use this financial information for different reasons.
雇员
Examples of non-financial information include the firm’s objectives, how it meets its
objectives (ethics), and its commitment to the environment and the community.
EXERCISE 1.1
1 Classify the following into either external or internal users by ticking the
appropriate column.
User Internal External

Suppliers
Customers
Bankers
Competitors
Managers
Potential investors
Trade Union
External auditors
Public
Government (Inland Revenue)
Employees
Owners
PAGE 4
给左边考右边
2 Suggest a user/s that would be interested in the following financial
information:
User Would be interested in

GST and income tax liabilities of the
business
The potential for increases in pay or
bonuses
The possible return on investment
Profitability/The ability of the firm to pay for
debts and expenses
The ability of the firm to carry on providing a
service or producing a product
The ability of the firm to pay them for the
goods / services provided
FORMS OF BUSINESS OWNERSHIP
The three most common forms of business ownership are:
 Sole Proprietor, sometimes called Sole Trader (one owner)

 A Partnership (two or more owners)
 A Limited Liability Company (one or more owners – the company is
incorporated under the Companies Act 1993
In Term I, we shall be looking at all the business activities from the point of view of a
Sole Proprietor.
In Term II, we will look at Companies.
PAGE 5
FEATURES OF A SOLE PROPRIETOR
1 Sole Trader businesses are NOT a separate legal entity from their owner. The
law sees the owner and the business as the SAME legal entity.
2 Sole Traders have UNLIMITED LIABILITY for the debts of the business. The
owners are personally liable for the debts of the business (their personal
assets may need to be sold to meet the debts of the business). This is the
main disadvantage of being a sole trader.
ADVANTAGES DISADVANTAGES
Owner doesn’t have to share the profit Unlimited liability （main）
Can make all the decisions themselves Owner bears the loss alone业主单独承担亏损
Can choose the hours they work Owner takes all the responsibility
Difficult to take time off if sick or for a
holiday
Expansion is limited by owner’s
personal resources or ability to borrow
Click here to watch a video about Users and Forms of Business

Ownership
Have you checked out the activities on Language Perfect?
PAGE 6
BUSINESS ASSETS AND LIABILITIES
Just like personal accounting, a business asset can be something owned by the
business and a business liability can be an amount owed by the business.
The NZ Framework includes definitions for the financial elements as follows:
ASSETS 资产 E.g:Building,Premises,Equipment,Furniture,Vehicles,
(cash at) Bank (account),Inventory,
own;control;use;belong
Accounts Receivable (Debtors)
Assets are resources controlled by the entity as a result of past events (usually
transactions), from which future economic benefits are expected to flow to the entity.
LIABILITIES 负债 E.g:Loan,Mortgage (home loan),Hire Purchase,

Bank Overdraft,Account Payable (creditor).
owe;borrow;not paid
Liabilities are present obligations of the entity as a result of past events (usually
transactions) which are expected to result in an outflow of resources representing
economic benefits when settled (in the future).
EQUITY 净值
Equity is the residual interest in the assets of the entity after deducting its liabilities.
This is the amount of assets that the owner has invested in the business (the
owner’s investment in the business). This is also called capital.
(External Reporting Board, 2011)
EQUITY = ASSETS MINUS LIABILITIES
EQ=A-L
PAGE 7
EXERCISE 1.2
Classify the following as Asset, Liability or Equity (A, L, Eq).
Cash at Bank Accounts Receivable

Building Vehicles
Inventory Accounts Payable
Machinery Capital
Bank Overdraft Furniture
EXERCISE 1.3
Make a list of assets and liabilities that a restaurant may have.
Assets and Liabilities of a Restaurant:
Assets Liabilities
PAGE 8
THE BASIC ACCOUNTING EQUATION
The Accounting Equation shows the Assets, Liabilities and Equity of a business at a
particular point of time. The Accounting Equation always balances.
The Accounting Equation can be written in two ways:
Assets = Liabilities + Equity (Capital Contribution)

OR
Equity (Capital Contribution) = Assets - Liabilities
THE RELATIONSHIP BETWEEN THE STATEMENT

OF FINANCIAL POSITION (BALANCE SHEET) AND
THE ACCOUNTING EQUATION
Motts News Agency

Statement of Financial Position (Balance Sheet)
as at 31 March 2028
Assets $ Liabilities $
Cash at Bank 1,000 Accounts Payable 1,500

Accounts Receivable 2,000
Stock 20,000 Equity
Shop Premises 60,000 Capital 31 March 2028 81,500
$83,000 $83,000
When looking at the Statement of Financial Position (Balance Sheet), it can be seen
that there is a relationship between Assets, Liabilities and Equity. The total of the
Assets is equal to the sum of the Liabilities and the Equity.
Assets = Liabilities + Equity

$83,000 = $1,500 + $81,500
PAGE 9
This relationship exists in the Statement of Financial Position (Balance Sheet) for
every business, and can be expressed in the form of an equation known as the
Short Accounting Equation;
A=L+C
Note:
Left hand side of the equation relates to USES of funds (how the
business has used its funds)
Right hand side of the equation related to SOURCES of funds (where
business obtained its funds)
THE STATEMENT OF FINANCIAL POSITION

(BALANCE SHEET)
The Accounting Equation is also presented in an accounting statement, called the

Statement of Financial Position (Balance Sheet).
The Statement of Financial Position (Balance Sheet) can be presented in two ways –
T-Form or Vertical Form.
Vertical Form is the most accepted and professional presentation.
Look at the example on the next page: Which form of the accounting equation is
shown?
PAGE 10
Tato’s Pharmacy (name of business)
Prepare Statement of Financial Position (Balance Sheet)
Date: as at 31 March 2028
$ $
(1) Assets
Bank 1 500
Inventory 10 000
Shop Premises 20 000
Total Assets 31 500
(2) Liabilities
Accounts Payable 5 000
Total Liabilities 5 000
(3)
NET ASSETS 26 500
(4) Equity
Capital 31 March 2028 26 500
Note: The Equity figure balances with the Net Assets figure.
The Statement of Financial Position (Balance Sheet) in this form is proving

that
C = A – L.
The Statement of Position (Balance Sheet) is clearly divided into two sections.
This is why both the Equity figure and the Net Assets figure are double
underlined; these are the totals for each section.
PAGE 11
The ‘T Form’ of the Statement of Financial Position (Balance Sheet) looks like this:
Tato’s Pharmacy
as at 31 March 2028
Bank 1,500 Accounts Payable 5,000

Inventory 10,000
Shop Premises 20,000 Equity
Capital 31 March 2028 26,500
$31,500 $31,500
EXERCISE 1.4
Complete the following table.
Assets = Liabilities + Equity

a. 15,000 2,000
b. 20,000 17,000
c. 3,500 18,500
d. 19,000 1,000
e. 25,000 3,000
f. 12,000 72,000
g. 5,000 15,000
h. 100,000 80,000
i. 250,000 200,000
PAGE 12
EXERCISE 1.5
I Film is the owner of the Moondale Cinema which has these assets and liabilities as
at 30 May 2018.
Land and buildings $50,000 Equipment $30,000

Creditors $ 2,000 Bank overdraft $10,000
(a) Calculate the Equity. Show all your workings.
Equity =
(b) Prepare a Statement of Financial Position (Balance Sheet) (remember –

Vertical Form).
Moondale Cinema
as at 30 May 2018
$ $ $
Assets
TOTAL ASSETS
Less Liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Click here to watch a video about the Financial Elements of the Accounting
Equation and the Financial Statements
PAGE 13
SECTION TWO ACCOUNTING CONCEPTS
Name (1) MONETARY MEASUREMENT

The Monetary Measurement Concept states:
(Meaning) Transactions are measured in the common monetary unit of

measurement. In New Zealand the dollar is the common unit of
measurement.
Name (2) THE ACCOUNTING ENTITY CONCEPT
The Accounting Entity Concept states:
(Meaning) The financial/economic affairs of the business are separate and

distinct from the financial/economic affairs of the owner
In other words, when preparing and presenting financial information, we must keep
the financial and/or economic information relating to the business, quite separate
from the financial/economic information relating to the owner. Also, if the owner
owns more than one business, the financial details for each business must also be
prepared and presented quite separately.
If the financial details for each entity are not prepared and presented separately, we
would not be able to tell how well each entity is performing.
Name (3) THE PERIOD REPORTING CONCEPT
The Period Reporting Concept states:

(Meaning) The life of the business is divided into periods of equal length so
that comparisons can be made.
This is evidenced in the accounts through the title e.g. Statement of Financial
Position (Balance Sheet) for Betty Boris Machinist as at 31 March 2022 or Income
Statement for Betty Boris for the year ended 31 March 2022.
PAGE 14
EXERCISE 2.1
Whetu has combined all his business and personal assets and liabilities. Complete
the table by writing beside each item either B for business or P for personal.
If you think something could be either business or personal, write both B and P.
ITEM B/P/BP ITEM B/P/BP

House Video
Office equipment Hire purchase – delivery van
Mortgage – house Boat
Cash at Bank – business Clothes
Credit card account Inventory
Accounts Receivable Television
Delivery Van Accounts payable
Personal bank account
EXERCISE 2.2
Betty Boris is a self-employed machinist. She comes to you for assistance in

preparing her business Statement of Financial Position (Balance Sheet). You ask
her several questions and as well as her telling you that she is finding it difficult to
pay her hire purchase instalments on time, you also find out the following
information:
Sewing Machine 1,200 Hire Purchase on Vehicle 5,000
House 78,000 Mortgage on House 50,000
Private vehicle 8,500 Husband’s Visa Card 479
Household furniture 6,500 Hire Purchase on waterbed 700
Tools 500 Household Power bill 20
Stereo 1,500 Unpaid advertising 50
Refrigerator 1,000
Washing Machine 500
Business Bank Account 10
PAGE 15
(a) Prepare the business Statement of Financial Position (Balance Sheet) for
Betty Boris’ Machinist Services as at 31 March 2021. (Hint: Remember the
Entity Concept).
Betty Boris Machinist Services

Statement of Financial Position (Balance Sheet) as at 31 March 2021
$ $ $
Assets
Less Liabilities
NET ASSETS
Equity
(b) Give Betty one piece of advice on how she can improve the cash position of
the business and avoid being behind with her hire purchase repayments in
future.
PAGE 16
Name (4) THE CONCEPT OF HISTORICAL COST
In business accounting, when recording the value of business assets, we shall start
by recording them at historical cost – the price we paid for them when we first bought
them.
The Historical Cost Concept states:
(Meaning)All transactions are recorded at the cost paid at the time of the
transaction.
The cost price is used to value transactions as this can be verified. This means that
the cost price can be proven as we have evidence of this amount from the source
document e.g. an invoice received from a supplier.
Because the cost price can be verified, users can rely on the amount when using it
to make decisions.
Name (5) THE CONCEPT OF GOING CONCERN

The Going Concern Concept states:
(Meaning)
Financial Reports are prepared on the assumption that the entity
will continue in existence for the foreseeable future
The effect on the accounts is that non-current assets are recorded at their historical
cost, not at their realisable value (what they could be sold for less the costs of
disposal).
Click here to watch a video about the five basic accounting concepts

Business
PAGE 17
SECTION THREE ASSETS & LIABILITIES
CLASSIFYING ASSETS AND LIABILITIES

We can divide assets up into a variety of different types, or categories. It is
important that you learn how to classify assets properly; otherwise you will not be
able to succeed at accounting.
The first division is into Current Assets and Non-Current Assets.
Current Assets are those that the entity expects to realise within 12
months after the reporting period
Non-Current Assets are those which we expect to keep in the business for
more than one reporting period.
.
Then we can divide Non-Current Assets up into Property, Plant and Equipment,
Investment Assets and Intangible Assets.
Property, Plant and Equipment
These are assets that are held for use in the production or supply of goods or
services, or for administrative purposes, and are expected to be used for more than
one accounting period.
Investment Assets
These are assets earn revenue for the business, but are not the main revenue–
producing assets of the firm. E.g. shares, government stock, term deposits.
Intangible Assets
These are assets which have no physical presence. They represent a right to
something, but are ‘untouchable.’
PAGE 18
Examples of Assets
ASSETS
CURRENT NON-CURRENT
ASSETS ASSETS
Examples:
Bank
Accounts receivable
Petty Cash INVESTMENT PROPERTY, INTANGIBLE
Inventory (Stock) ASSETS PLANT AND ASSETS
EQUIPMENT
Examples: Examples: Examples:

Shares in Other Land Goodwill
Companies Buildings Patent
Term Deposit Vehicles Copyright
(funds on term Furniture
deposit in the Equipment
bank earning Machinery
interest)
We can divide liabilities up into different types. Again it is important that you learn
how to classify liabilities properly, otherwise you will not be able to succeed at
accounting.
Current Liabilities are those that are due to be settled within 12 months of
the reporting period.
Non-Current Liabilities are those that are due to be settled beyond 12 months of
the reporting period.
The above definitions can be found in the Level One Accounting Appendix.
(NZQA, 2010)
PAGE 19
Examples of Liabilities
LIABILITIES
(One year) (More than one year)
CURRENT NON-CURRENT
LIABILITES LIABILITES
Examples: Examples:
Bank Overdraft Hire Purchase
Accounts Payable Mortgage
Loan (due within the Loan (due in > 1
accounting period) years’ time)
PAGE 20
EXERCISE 3.1
Classify each of the following items below under one of the following headings:
Current Asset (CA); Property, Plant and Equipment (PPE); Intangible Asset (Int);
Investment Asset (Inv); Current Liability (CL); Non-Current Liability (NCL)
a. Accounts receivable l. Goodwill

b. Bank overdraft m. Inventory
c. Petty cash n. Equipment
d. Furniture o. Premises
e. Mortgage p. Accounts payable
f. Motor vehicles q. Cash at bank
g. Patent r. Land
h. Machinery s. Office Equipment
Hire Purchase on Shares in a
i. t.
Machinery Company
Bank Loan (due in 2
j. Term Deposit u.
years)
k. Buildings
PAGE 21
EXERCISE 3.2
Match the following definitions with the right terms shown on the next page.
a) These have no physical presence. They cannot be physically seen or
touched.
b) These are present obligations of the business as a result of past events
which are expected to result in an outflow of resources representing
economic benefits when settled (in the future).
c) We will retain these in the business for longer than the current accounting
period.
d) We expect to re-pay these within the coming accounting period (within 12
months).
e) Term deposits, or shares in the company that produce revenue, but are
not the main revenue-producing item.
f) These are resources controlled by the entity as a result of past events
from which future economic benefits are expected to flow to the entity.
g) The main income-producing items of the firm that are kept for more than
one accounting period.
h) These will be repaid over a period of time beyond the current accounting
period (re-paid after 12 months)
i) We will turn these into cash, or use up within the current accounting period.
Match with these Terms:
1. Asset
2. Current Asset
3. Non-Current Asset
4. Property, Plant and Equipment
5. Investment Asset
6. Intangible Asset
7. Liability
8. Current Liability
9. Non-Current Liability
PAGE 22
IDENTIFYING ASSETS AND LIABILITIES
An accountant has to be able to identify whether a particular item in a transaction is

an asset or a liability, so that the Statement of Financial Position (Balance Sheet) is
prepared accurately.
To do this, we will focus on the same characteristics of each definition, and justify how
the asset or liability meets the characteristics of the definition.
ASSETS
Assets are resources controlled by the entity as a result of past events, from which
future economic benefits are expected to flow to the entity.
An asset is made up of these three main characteristics:

资产由三大特点组成：
Future Economic Benefit Usually the future economic benefit will be income
未来经济效益 that the asset will be used to produce. 通常未来的经济利益将是
资产将用于生产的收入
这意味着没有
Controlled by the Entity This means that nobody else can use the asset to 人能够利用资
由实体控制 earn the income / receive the future economic benefit.产赚取收入/

获得未来的经
济利益
Past event This is how the entity came to have control over the
过去的事件 asset. 这是实体如何控制资产
LIABILITIES
Liabilities are present obligations of the business as a result of past events which are
expected to result in an outflow of resources representing economic benefits when
settled in the future.
A liability is made up of these three main characteristics:
Present Obligation Owe This means what the entity must do because they
目前的义务 have incurred the liability.这意味着实体必须做什么，
因为它们承担了责任
Outflow of resources This means how will the liability be settled or paid i.e.
representing economic which resource (asset) will flow out of the entity when
benefits资源流出代表经济效益 the liability is settled. 这意味着责任将如何解决或支付，哪个资源（资
产）将在负债结算时流出实体
Past event 过去的事件 This is how the entity came to have the liability.
这是实体如何承担责任
PAGE 23
EXERCISE 3.3
Explain why the following would be classified as an asset:
(a) Machine in a Factory:
Future Economic Benefit
Controlled by the Entity
Past event
(b) Land of a Farmer:
Past event
(c) Delivery Vehicle:
Past event
PAGE 24
(d) Accounts Receivable:
Past event
EXERCISE 3.4
Explain why the following would be classified as a liability:
(a) Loan from the bank:
Present Obligation
Outflow of resources representing

economic benefits
Past event
(b) Accounts Payable:
Present Obligation
Outflow of resources representing

economic benefits
Past event
PAGE 25
SECTION FOUR INCOME, EXPENSES &
PROFIT
The purpose of the business is to make a profit, either by selling a service or by selling
goods. The money earned is called Income (or Revenue).
A business also has to pay expenses, such as wages, or rent.
INCOME – EXPENSES = PROFIT
The Profit of a business belongs to the owner.

Therefore, we can also say that Income will
decrease
increaseEquity, and Expenses will _________
________
Equity.
The following definitions come from the NZ Framework:
INCOME
理理 Income is increases in economic benefits in the form of inflows or enhancements to

assets or decreases in liabilities that result in increases to equity, other than
解 contributions from equity participants e.g. Sales, Fees.
EXPENSES
Expenses are decreases in economic benefits in the form of outflows or depletions of

assets or incurrences of liabilities that result in decreases in equity, other than those
relating to distributions to equity participants .e.g. rent, advertising.
(External Reporting Board, 2011)
PAGE 26
CLASSIFYING INCOME AND EXPENSES
The income (revenue) and expenses of a business can be separated into different
groups by nature or by function. Disclosure requirements for a sole trader are to be
shown by classification of income and expenses by function.
INCOME
Trading or Fee Revenue is the main income of the business.

Other Income comes from activities which are not the main focus of the firm.
EXPENSES
• Distribution Costs are any expenses incurred in transferring ownership of

finished goods to the consumer. Those expenses incurred through the
promotion, storage, selling and delivery of the inventory for sale.
• Administrative Expenses Administrative expenses are costs associated with
the administration of the entity as a whole (running the business).
• Finance Costs relate to financing the business from external sources.
Interest paid on money borrowed by the business is the only finance cost we
will have.
The above definitions can be found in the Level One Accounting Appendix.
(NZQA, 2010)
Example of Income
INCOME
(Main)
TRADING/SERVICE OTHER INCOME

REVENUE
Examples: Examples:
Sales 销售 Discount Received 获得优惠
Fees 费用 Commission Received 佣金收入
Interest Received 利益收入
Gain on Sale of a Fixed Asset
Rent Received
PAGE 27
Example of Expenses
EXPENSES
ADMINISTRATIVE FINANCE
DISTRIBUTION COSTS EXPENSES COSTS
Delivery,selling Office,general
Examples: Examples: Examples:

Advertising 广告 Rent Paid 租金付款 Interest Paid
Sales Salaries 销售工资 Insurance
送货车费用
Delivery Van Expenses Accountancy Fees (I paid to the accountants.)
Commission Paid 佣金费用 Rates
Freight/Cartage Out 货运/卡车支出 General Expenses
Repairs
Office Salaries/Wages
Electricity
Stationery and Postage
Telephone Rental
Bad Debts 坏账
Doubtful Debts 可疑债务
Discount Allowed
Loss on Sale
Donations
PAGE 28
EXERCISE 4.1
Classify each item below under one of the following headings:

Income: Revenue (R); or Other Income (OI); Expenses – Distribution Costs (DC),
Administrative Expenses (AE), Finance Costs (FC).
Bad Debts Advertising

Interest Paid Interest Earned
Rent Earned Commission Received
Rent Paid Insurance
Repairs to Delivery Vehicle Loss due to Fire
Discount Allowed Accounting Fees Paid
General Expenses Office Wages
Sales Wages Electricity
Stationery Telephone rental
Fees Received Sales
Discount Received General Repairs
PAGE 29
IDENTIFYING INCOME AND EXPENSES
An accountant has to be able to identify whether a particular item in a transaction is

income or expense, so that the Statement of Financial Position (Balance Sheet) is
prepared accurately.
To do this, we will focus on the same characteristics of each definition, and justify how
the income or expense meets the characteristics of the definition.
INCOME
Income must increase economic benefits by:
A Inflow or enhancement in
assets OR decrease in
This requires you to look for whether an asset or
a liability is involved and is there an increase or a
liabilities decrease.
Increase in equity Assets have increased which increases equity
EQ OR Liabilities have decreased which increases
equity
The increase in equity is not a This means that the transaction does not involve
contribution from the owner the owner giving the business cash or other
assets.
EXPENSES
Expenses must decrease economic benefits by:
Outflow or depletion of assets This requires you to look for whether an asset or
OR increases in liabilities a liability is involved and is there an increase or a
decrease.
Decrease in equity Assets have decreased which decreases equity
OR Liabilities have increased which decreases
equity
The decrease in equity is not a This means that the transaction does not involve
distribution to the owner the owner taking drawings of cash or any other
assets.
PAGE 30
EXERCISE 4.2
Explain why the following would be classified as income:
(a) The business has sold goods for cash:
Inflow or enhancement in assets OR

decrease in liabilities
Increase in equity
Not a contribution from the owner
(b) The business has sold goods on credit:

Increase in equity
(c) The business receives discount when it pays accounts payable:

Increase in equity
PAGE 31
(d) The business receives interest on a term deposit:

Increase in equity
EXERCISE 4.3
Explain why the following would be classified as an expense:
(a) The business has paid the employees their wages:
Outflow or depletion of assets OR

increases in liabilities
Decrease in equity
Not a distribution to the owner
(b) The business has bought goods on credit:

Decrease in equity
PAGE 32
(c) The business has paid for advertising:

Decrease in equity
PAGE 33
EXERCISE 4.4
You are to classify the following items by stating whether the item is Income or
Expense, or Asset, Liability or Equity. In the type column, state the type of income or
expense or asset or liability so that each item is fully classified.
The first one has been done as an example.
Income / Asset / Liability / TYPE

Expense Equity
Bank A CA
Interest Received
Plant (cost)
Fees Received
Discount Allowed
Goodwill
Accounts Receivable
Capital
Rates
Land & Buildings (cost)
Stationery
Premises (cost)
Sales
Loss on Sale
Interest on Mortgage
Hire Purchase
Bad Debts
Mortgage
Electricity
Term Deposit
Gain on Sale
Accounts Payable
Advertising
Insurance
Cell phone
Sales Staff wages
PAGE 34
EXERCISE 4.5
Classify the following items by placing a tick () in the correct box.
Items Assets Liabilities Equity Expenses Income

Current
and Equipment
Property Plant
Investment
Intangible
Current
Non-Current
Distribution
Admin
Finance
Income
Other Income
Goodwill
Term Deposit
Stationery
Advertising
Rent Received
Interest on
Bank Overdraft
Premises
Accounts
Receivable
Cash at Bank
Equipment
Shares in
other
Company
Rent expense
Insurance
Bad Debts
Discount
Allowed
Gain on sale of
Asset
Wages
Sales staff
wages
PAGE 35
Items Assets Liabilities Equity Expenses Income
Current
and Equipment
Property Plant
Investment
Intangible
Current
Non-Current
Distribution
Admin
Finance
Income
Other Income
Repairs -
delivery
vehicles
Accounts
Payable
Machinery
Bank Overdraft
Salesmen
salary
Accountancy
fees
Rates
Petty Cash
Vehicles
Inventory
Telephone
Rental
Capital
contribution
PAGE 36
SECTION FIVE EQUITY
股权变动表
STATEMENT OF CHANGES IN EQUITY
Equity can change during the financial year. We can complete a Statement of
Changes in Equity for a sole trader that looks like this:
ABC Company
Statement of Changes in Equity
for the Year Ended 31 March 2023
Equity $
Capital 1 April 2022 150,000
Plus: Contribution by owner 10,000 加：所有者的贡献
160,000
Plus: Profit (Loss) for the Period 80,000 加：期间利润（亏损）
240,000
Less: Drawings 40,000
Capital 31 March 2023 $ 200,000
Note:
收入花费
利润 Profit = Income - Expenses
图纸 Drawings = Cash or goods taken from the business by the

owner, for the owner’s personal use.
现金或业主从业主取得的货物，供业主个人使用
Drawings are treated as a reduction in equity, not as an expense of the business.
图纸被视为减少权益，而不是业务费用
PAGE 37
EXERCISE 5.1
Qing commenced business with cash of $40,000 on 1 April 2021. At the end of the
financial year, 31 March 2022 her equity was $70,000. She had not contributed any
more assets to the business during the year, nor had she taken any drawings from it.
You are required to:

Calculate the profit earned by Qing’s business during the year ended 31 March
2022.
EXERCISE 5.2
Zhang commenced business as a mobile mechanic on 1 April 2022. He contributed

tools costing $5,000, a van costing $10,000 and cash of $3,000 to the business.
During the year ended 31 March 2023 he withdrew cash of $12,000. Income for the
year was $40,000 and expenses were $15,000.

(a) Calculate the profit earned by Zhang’s business during the year ended 31
March 2023.
Income
Less: Expenses
Profit for the period
PAGE 38
(b) Prepare a Statement of Changes in Equity for the year ended 31 March 2023.
Zhang’s Mobile Mechanic

for the Year Ended 31 March 2023
EQUITY $
EXERCISE 5.3
Dave’s business began the year with equity of $83,000. By the end of the year
equity had risen to $97,000. During the year Dave contributed $15,000 and he also
withdrew $12,000 cash for personal use.

Calculate the business profit for the year.
Dave’s Business
For the Year ended 31 March 2022
EQUITY $
PAGE 39
EXERCISE 5.4
Auckland Antiques had assets of $400,000 and liabilities of $100,000 at the

beginning of the year. At the end of the year, the assets were $550,000 and liabilities
were $220,000. Profit for the year amounted to $80,000. During the year the owner
invested a car valued at $5,000 in the business.

Calculate the drawings made by the owner during the year.
Auckland Antiques
For the Year Ended 31 March 2023
EQUITY $
EXERCISE 5.5
Chan owns a dress shop. During the year ended 30 June 2019 the shop made a
profit of $60,000 and Chan withdrew $32,000 cash for personal use. Her equity at
the beginning of the year was $84,000.

(a) Calculate the equity at the end of the year.
Chan's Dress Shop

For the Year Ended 30 June 2019
EQUITY $
PAGE 40
(b) At 30 June 2019 business liabilities were $21,000. Calculate the amount of
the assets.
$
EXERCISE 5.6
Tom’s business had assets of $63,000 and liabilities of $21,000 at the beginning of
the year. At the end of the year, the assets were $75,000 and the liabilities were
$30,000. Drawings for the year were $14,000.

Calculate the business profit for the year.
OPENING EQUITY $
CLOSING EQUITY
Tom's Business
For the Year Ended 31 March 200X
EQUITY $
PAGE 41
EXERCISE 5.7
Bob’s Builders began the year with assets of $110,000 and liabilities of $44,000. At
the end of the year, assets amounted to $120,000 and liabilities had risen to
$60,000. During the year, Bob, the proprietor, contributed equipment worth $30,000
to the business and withdrew $25,000 cash for personal use. Income for the year
was $120,000.

(a) Calculate the business loss for the year.
OPENING EQUITY $
CLOSING EQUITY $
Bob's Builder
For the Year Ended 31 March 200X
EQUITY $
(b) Calculate the business expenses for the year.
PAGE 42
SECTION SIX EXPANDED EQUATION
AND PROCESSING
THE EXPANDED ACCOUNTING EQUATION
Up until now, we have been using the short accounting equation of

A = L + C.
Now think carefully. Remember earlier we said that the LEFT side of the
equation represented our USES of funds and that the RIGHT side of the
accounting equation represented our SOURCES of funds?
WELL, WHAT ARE DRAWINGS, INCOME AND EXPENSES?

DRAWINGS ARE A USE OF FUNDS
INCOME IS A SOURCE OF FUNDS
EXPENSES ARE A USE OF FUNDS
So, we can expand the accounting equation to read:
ASSETS + EXPENSES + DRAWINGS = LIABILITES + CAPITAL + INCOME
OR
+SR+ A + E + D = L + C + I +PR
A=L-C
A=L+[Capital(beginning)+P-D]
PAGE 43
THE ACCOUNTING PROCESS IN A MANUAL
ACCOUNTING SYSTEM
TRANSACTIONS
SOURCE DOCUMENTS
JOURNALS
GENERAL LEDGER
TRIAL BALANCE
FINANCIAL STATEMENTS
• INCOME STATEMENT
• STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
• CASH FLOW STATEMENT
TRADING BUSINESSES 贸易易业务
In this course we are going to focus on recording transactions for a business that
buys goods (inventory) and then sells these goods. This type of business is called
a Trading Business.
Terminology 术语
• When a trading business sells goods (inventory) we call this Sales. Income
• Sometimes a customer may return goods. This is called Sales Returns.Negative Income
• When a trading business buys goods (inventory) to sell we call this
Purchases. Expenses
• Sometimes a business may return goods to the supplier – this is called
Purchases Returns. Negative Expenses
PAGE 44
RECORDING TRANSACTIONS ON THE
ACCOUNTING EQUATION
Before we look at analysing transactions into debit and credit we will look at how to
record the transactions on the accounting equation.
The exercises are in an Excel file in Excel Resources in your Blackboard course.
There is a video here to describe what you need to do:
Recording transactions on the accounting equation
ANALYSING TRANSACTIONS INTO DEBIT AND

CREDIT
Before you record transactions, there is a thinking process that you go through i.e.
questions that you must ask yourself about the transaction so that you record it
correctly. The questions you ask are:
1 What accounts are involved?

For each account:
2 What type of account is it? I.e. A, E, D, L, I, C
3 What is the normal nature of the account? I.e. DR or CR
4 Is the account increasing or decreasing?
5 Conclusion – I will DR or CR as appropriate
As you get faster at this, you will be able to “automatically” think of the DR first.
EXERCISE 6.1
State whether each of the accounts below would normally have a debit or a credit
balance:
ACCOUNT Debit/Credit ACCOUNT Debit/Credit

Accounts Receivable Goodwill
Capital Shop Fittings
Sales Purchases Returns
Telephone Expense Accounts Payable
Purchases Drawings
Commission Received Mortgage
Motor Vehicle Sales Returns
PAGE 45
EXERCISE 6.2
Complete the transaction analysis chart provided for each of the transactions below.
The first one has been done as an example for you to follow.
EXAMPLE: Paid wages $400

(a) Owner invested $42,000 cash in the business
(b) Bought equipment for cash $2,500
(c) Received cash of $1,500 from customers on account
(d) Cash sales $1,200
(e) Cash purchases $800
(f) Sold goods on credit $3,200
(g) Purchased goods on credit $1,800
(h) Returned goods to suppliers $80
(i) Sold goods on credit $2,200
Account Account Increasing or DR or Amount

Transaction
name type Decreasing CR $
EXAMPLE Wages Expense Increasing DR 400
Bank Asset Decreasing CR 400
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
PAGE 46
EXERCISE 6.3
Complete the transaction analysis chart provided for each of the transactions below.
(a) Proprietor invested $410,000 cash in a business bank account.

(b) Bought equipment for $5,000 cash.
(c) Received $41,000 from customers on account.
(d) Paid accounts payable $500.
(e) Borrowed $10,000 from the bank as a long term loan.
Transaction Account Account Increasing or DR or Amount

(a)
(b)
(c)
(d)
(e)
PAGE 47
EXERCISE 6.4
The following information has been taken from the accounting records of G Smith.
Transactions – October 2021
Oct 1 Owner invested $10,000 cash into the business bank account
2 Bought equipment for cash $5,000
3 Received $1,000 from customers on account
4 Paid accounts payable $500
5 Borrowed $10,000 from the bank
Complete the transaction analysis chart provided for the above transactions.

Transaction
Oct 1
PAGE 48
EXERCISE 6.5
Record the following information of K Boston for November, using the transaction
analysis chart provided.
Transactions – November 2021

Nov 3 Paid wages $400
4 Owner invested $2,000 cash in the business
5 Bought equipment for cash $2,500
6 Received cash $1,500 from customers on account
7 Cash sales $1,200
8 Cash purchases $800
9 Sold goods on credit $3,200
10 Purchased goods on account $300
11 Returned goods previously purchased on credit $300
12 Sold goods to customers on account $2,300

Transaction
Nov 3
10
11
12
PAGE 49
Click here to watch a video about Double Entry
LEDGER ACCOUNTS – “T” FORM
A Ledger Account – ‘T’ Form
Debit Credit
Date Particulars $ Date Particulars $
Relationship to the Accounting Equation
A+E+D = L+C+I
DR CR DR CR
Balance Balance
Please note:
• Each account is shaped like a ‘T’.
• Asset accounts are on the left hand side of the accounting equation and on
the left hand side of the trial balance. Their balances are on the left hand side
of their ledger accounts. This is called the debit side.
• Liabilities and Equity are on the right hand side of the accounting equation
and the right hand side of the trial balance. Their balances are on the right
hand side of their ledger accounts. This is called the credit side.
• ‘Debit’ is abbreviated as Dr and ‘credit’ is abbreviated as Cr.
• The accounting equation still balances.
PAGE 50
Assets Liabilities
+ - - +
Expenses Equity
=
+ - - +
Drawings Income
+ - - +
Like the asset accounts, expense and drawings accounts are on the left hand
side of the accounting equation. Thus they have a debit nature: to increase these
accounts requires a debit entry and to decrease them requires a credit entry.
Income accounts are on the right hand side of the accounting equation. Like the
liability and equity accounts, they have a credit nature and are increased by a
credit entry and decreased by a debit entry.
PAGE 51
RECORDING BALANCES IN THE GENERAL
LEDGER
The opening trial balance for Max and Mo as at 1 February 2022 is as follows:
Max and Mo
Trial Balance as at 1 February 2022
$ $
Accounts Receivable 12,400 Loan (due 31 July 2025) 30,000
Inventory 30,000 Capital 56,000
Shop Fittings (cost) 13,600
Van (cost) 40,000
$ 105,000 $ 105,000
If these balances were recorded in a ledger, it would look like this:
BANK ACCOUNTS PAYABLE

Feb 1 Balance 9,000 Feb 1 Balance 19,000
ACCOUNTS RECEIVABLE LOAN

INVENTORY CAPITAL
SHOP FITTINGS
Feb 1 Balance 13,600
VAN
Feb 1 Balance 40,000
PAGE 52
EXERCISE 6.6
The following information has been taken from the accounting records of G Smith.
Balances 1 October 2021:

Bank $33,500; Equipment $1,750; Accounts Receivable $3,000; Accounts Payable
$1,750; Loan $10,000; Capital?
1 Enter the opening balances into the ledger accounts.

2 Using the transaction analysis chart from Exercise 6.4, post the transactions
to the general ledger accounts.
Bank
Accounts Receivable
Accounts Payable
Loan
Capital
Equipment
PAGE 53
EXERCISE 6.7
The following information has been taken from the accounting records of K Boston.
Balances 1 November 2021
Bank $4,000; Equipment $2,500; Accounts Receivable $2,000; Accounts Payable

$3,500; Capital?
1 Enter the opening balances into the ledger accounts.

2 Using the transaction analysis chart from Exercise 6.5, post the transactions
to the general ledger accounts.
Bank
Equipment
Accounts Receivable
Accounts Payable
PAGE 54
Capital
Wages
Sales
Purchases
Purchases Returns
PAGE 55
EXERCISE 6.8
Each of the following sets of ledger accounts shows a separate transaction. For each
set, write a sentence that describes the transaction in full.
(a)
Bank Van
Van 20,000 Bank 20,000
(b)
Equipment Bank
Bank 5,000 Equip 5,000
(c)
Bank Accounts Receivable
A/c Rec 2,500 Bank 2,500
(d)
Bank Sales Returns
Sales Ret 250 Bank 250
(e)
Purchases Bank
Bank 10,000 Purchases 10,000
(f)
Accounts Receivable Sales
Sales 1,000 A/c Rec 1,000
PAGE 56
(a)
(b)
(c)
(d)
(e)
(f)
Click here to watch a video about Posting to the Ledger
PAGE 57
BALANCING A LEDGER ACCOUNT
Consider this Bank Account:
Bank
Mar 1 Balance 9,000 Mar 4 Accounts Payable 1,200
7 Accounts Receivable 2,750 7 Shop Fittings 2,000
Step 1: Add both sides of the account, to find the largest side, as this will be
the nature of the balance i.e. if the largest side is the DR side, then the
balance will be a DR balance.
Debit side = $ 9,000 + $2,750 = $11,750

Credit side = $1,200 + $2,000 = $3,200
Step 2: Find the difference between the two sides
Difference = $11,700 - $3,200

= $8,550
Step 3: Enter the balance in the account on the side with the smaller total
(In this case the credit side). This will make both sides balance.
The date used is usually the last day of the month since this is normally
when balancing is carried out. We are using the end of the week. The
account becomes:
Bank
31 Balance 8,550
Step 4: Total both sides (they should now have the same total). Transfer the
closing balance down to the opposite side so that the account is
opened for the next week’s transactions. (The next day’s date is
normally used.)
Bank
31 Balance 8,550
$11,750 $ 11,750
Apr 1 Balance 8,550
NB: the totals appear on the SAME LINE and are underlined TWICE with $ signs in
front of the figures. Since the Bank account is an asset, the opening balance for the
next week appears on the DEBIT side of the ledger account.
PAGE 58
EXERCISE 6.9
The general ledger from the business of Bobo’s Boutique for the month of February
2023 follows.
Balance the ledger accounts.
Bank
Feb 6 Accounts Receivable 320 Feb 1 Balance 650
7 Sales 630 3 Accounts Payable 210
23 Capital 600 8 Drawings 200
13 Wages 300
14 Rent 150
19 Purchases 290
27 Wages 300
28 Rent 150
Accounts Receivable
Feb 1 Balance 570 Feb 6 Bank 320
20 Sales 490 24 Sales Returns 50
25 Interest 20
Inventory
Feb 1 Balance 6,500
PAGE 59
Shop Fittings
Feb 1 Balance 3,500
18 Accounts Payable – 1,000
Other
Accounts Payable
Feb 3 Bank 210 Feb 1 Balance 420
12 Purchases Returns 70 10 Purchases 530
Accounts Payable – Other

Feb 18 Shop Fittings 1,000
Capital
Feb 1 Balance 9,500
23 Bank 600
PAGE 60
Drawings
Feb 8 Bank 200
2 Purchases 80
Sales
Feb 7 Bank 630
20 A//c Receivable 490
Sales Returns
Feb 24 A/c Receivable 50
Interest
Feb 25 A/c Receivable 20
Purchases
Feb 10 A/c Payable 530 Feb 22 Drawings 80
19 Bank 290
PAGE 61
Purchases Returns
Feb 12 A/c Payable 70
Wages
Feb 13 Bank 300
27 Bank 300
Rent
Feb 14 Bank 150
28 Bank 150
PAGE 62
THE TRIAL BALANCE
Once the ledger accounts have been balanced, a trial balance can be prepared. This
is a statement of the balances of the ledger accounts, taken out to check that the
total debits equal the total credits i.e. that double entry has been carried out
correctly. It is not a ledger account.
The trial balance can be prepared in two formats:
T-Format
Sample Business Ltd
Trial Balance
as at 30 April 2030
Debit $ Credit $
Accounts Receivable 30,000 Loan 20,000
Inventory 13,000 Capital 30,000
Equipment 12,000
65,000 65,000
Modern
This is the most widely used format.
Sample Business Ltd

Trial Balance
as at 30 April 2030
Debit $ = Credit $
Bank 10,000
Inventory 13,000
Equipment 12,000
Loan 20,000
Accounts Payable 15,000
Capital 30,000
65,000 = 65,000
PAGE 63
The Trial Balance and Errors
If the trial balance does not balance check the following:
• incorrect addition
• incorrect recording of an amount e.g. transposing figures on one side of the
entry (if the difference is divisible by 9 exactly this is what you have done)
• omitting a debit or credit entry
• duplication of a debit or a credit entry
It is important to understand that if the trial balance does balance there may still be
errors in the ledger accounts:
• complete omission of transactions

• reversal of debit and credit entries when recording
• recording transactions twice
• entering transactions in the wrong account
• entering the wrong amounts in both accounts
PAGE 64
EXERCISE 6.10
Ant-Man is a super-hero. His ledger balances at 1 April 2023.
Assets: Cash at bank $6,500, Accounts receivable $4,700, Equipment $20,000

Liabilities: Accounts payable $900, Loan $10,000.
(a) Calculate Ant-Man’s capital at 1 April 2023.
Calculation:
Capital =
(b) Enter the balances in the General Ledger.
(c) Enter the following transactions in the General Ledger:

April 2 Ant-Man invested $4,500 cash in the business
April 16 Received $4,200 from clients on account
April 20 Paid accounts payable $500
April 27 Paid $1,000 cash off the loan
(d) Balance the ledger accounts at 30 April 2023 and prepare a trial balance at
that date.
Cash at Bank
PAGE 65
Accounts Receivable
Equipment
Accounts Payable
Loan
Capital
PAGE 66
Ant Man Super Hero
Trial Balance
as at 30 April 2023
Debit $ Credit $
Click here to watch a video about balancing ledger accounts and taking out a
trial balance
PAGE 67
GENERAL JOURNAL TO GENERAL LEDGER
The General Journal is used to record transactions in date order. It helps us trace
transactions both before, and after, they have been entered in the ledger. It acts as
a ‘map’ for the ledger accounts – which record transactions by ‘type’. Recording
debits and credits of transactions in the General Journal helps us make sure the
transactions get posted to the correct ledger accounts.
Note the following:
• The heading is the same as the financial statements (name of entity on the top
line, followed by name of document on the second line) except that it does not
include the date.
• When entering the date, the year is at the top of the column, then the month next
to the first transaction for that month, followed by the date.
• The debit entry is recorded first, then the credit entry.
• The credit entry is ‘indented’ – that means it is moved over to the right – in the
particulars column. See the in the journal below.
• Each entry has a ‘narration’ – a short sentence which explains what the
transaction was.
• A line is left between each entry.
Example:
Invests
Transaction : The owner contributes $10,000 to the business.
DATE PARTICULARS /Details DR $ CR $

Feb 1 Bank (Name to be debits) 10,000
Capital 10,000
(Owner contributes $10,000)
PAGE 68
EXERCISE 6.11
Enter the following transactions in the General Journal and then the General Ledger.
1 Owner invests her car, to be used as a company car, valued at $10,000.
DATE PARTICULARS DR $ CR $
2 Received $2,000 from customers on account.
PAGE 69
3 Paid wages $44,000
4 Business pays owner’s household insurance policy of $150
PAGE 70
EXERCISE 6.12
Enter the transactions in the General Journal and then the General Ledger.
1 Owner invests cash $15,000
2 Received a loan $12,000
PAGE 71
3 Paid suppliers on account $28,000
4 Owner withdrew $5,000 cash
PAGE 72
SECTION SEVEN GOODS AND SERVICES TAX
商品和服务税
Goods and Services Tax (GST) is a domestic consumption tax. This is paid for by
the users of goods. It is a tax imposed by the government and administered by the
税务局 Inland Revenue Department (IRD). GST is an indirect tax as the tax is collected by
businesses and passed onto the government. It does not go directly to the
government like income tax, which is a direct tax.
Businesses that are registered for GST charge GST on all the goods and services
they provide, as well as paying GST on most of their expenses.
The difference between the GST collected on revenue and the GST paid on
expenses is then calculated.
There is no GST on the following:

• Wages or salaries Loan/Mortgage
• Interest, Bank Fees
• Dividends received Contribution by owner
Remember
• Commissions paid "Cash "Drawings
COLLECTION OF GST
Businesses that are registered for GST act as agents for the Inland Revenue
Department. They must complete a GST return.
GST collected by businesses (from customers) $ xxxxxx

Less GST paid by the business (to suppliers) $ xxxxxx
Equals GST payable (refund) $ xxxxxx
Note:
• If GST collected from customers is more than GST paid (to suppliers) the business
must pay the balance to the Inland Revenue Department (IRD). This is shown as
a current liability.
• If GST collected is less than GST paid, the business can receive a refund. This is
shown as a current asset. Buy goods/PPE
Customers Suppliers
Business
Collect GST
Pay GST
from
Calculate GST payable or receivable
Inland Revenue
PAGE 73
CALCULATING GOODS AND SERVICES TAX
• The price of an item before GST has been added on is GST exclusive.
• The price of an item after GST has been added is GST inclusive.
• GST is currently charged in New Zealand at the rate of 15%.
o To go from GST exclusive to GST inclusive: X 1.15
o To go from GST inclusive to GST exclusive: ÷ 1.15
o To calculate GST from an GST exclusive figure: X 0.15
PAGE 74
EXERCISE 7.1
Each of (a) to (l) given below represents the GST exclusive selling price of goods.
For each one of these, you are required to:
GST Exclusive Price GST GST Inclusive Price

$ $ $
(a) 240
(b) 800
(c) 2,000
(d) 440
(e) 960
(f) 18,000
(g) 720
(h) 1,600
EXERCISE 7.2
Each of (a) to (h) given below represents the GST inclusive selling price of goods.
For each one of these, you are required to:
GST Inclusive Price GST Exclusive Price GST Included

$ $
(a) 115
(b) 345
(c) 2,760
(d) 2,875
(e) 4,140
(f) 8,280
(g) 1,725
(h) 920
PAGE 75
EXERCISE 7.3
During one particular period the business made cash sales of $110,400 including
GST and paid expenses of $36,800 including GST.
(a) Calculate the GST collected by the business.
(b) Calculate the GST paid by the business.
(c) Calculate the amount which will be shown on the GST return prepared for this
business. Is this amount payable to the Inland Revenue (IRD) or will the firm
receive a refund?
Calculation:
GST collected by the business:
Calculation:
GST paid by the business:
Calculation:
GST REFUNDABLE / PAYABLE
PAGE 76
RECORDING TRANSACTIONS WITH GST
Consider the following transactions. We shall assume they took place in February
2022. Include GST where applicable.
3 Owner invests her car, to be used as a company car, valued at $10,000

8 Business pays Owner’s household insurance policy of $150
10 Business pays business insurance of $1,150
18 Receives cash for services $5,520
20 Owner takes $500 for her own use
22 Pays Accounts Payable of $3,500
Below, you can see how the transactions are entered into the General Journal.
(Name of Entity)
GENERAL JOURNAL
2022
Feb 3 Vehicle 10,000
Capital 10,000
(for car invested by owner)
4 Bank 2,000
(for cash received from customers)
5 Wages 44,000
Bank 44,000
(paid wages)
8 Drawings 150
Bank 150
(payment of personal insurance)
Easy:(3),(5),(8),(20).
Difficult:(10),(18).
More difficult:(4),(22). PAGE 77
2022
Feb 10 Insurance 1,000
GST 150
Bank 1,150
(for payment of insurance)
18 Bank 5,520
Fees 4 800
GST 720
(for payment of services with cash)
20 Drawings 500
Bank 500
(for cash drawings)
22 Accounts Payable 3,500

Bank 3,500
(for payment of accounts payable)
EXERCISE 7.4
Complete narrations for the general journal entries.
GENERAL JOURNAL
Bank
Sales
GST
Drawings
Bank
PAGE 78
Advertising
GST
Bank
Accounts Receivable
Sales
GST
Sales Returns and Allowances

GST
Accounts Receivable
GST
Purchases
Bank
Petrol and Oil

GST
Bank
Purchases
GST
Accounts Payable
Accounts Payable
Purchases Returns & Allowances
GST
PAGE 79
Rent
GST
Bank
Drawings
Purchases
GST
Bank
Discount Allowed
Accounts Receivable
Accounts Payable
Bank
Discount Received
Interest on Loan
Loan
Bank
Shop Fittings
GST
Accounts Payable - other
PAGE 80
REMEMBER: ANALYSING TRANSACTIONS FOR
RECORDING
Before you record transactions, there is a thinking process that you go through i.e.
questions that you must ask yourself about the transaction so that you record it
correctly. The questions you ask are:
1 What accounts are involved?
For each account:
2 What type of account is it? I.e. A, E, D, L, I, .Eq.

3 What is the normal nature of the account? I.e. DR or CR
4 Is the account increasing or decreasing?
5 Conclusion – I will DR or CR as appropriate
As you get faster at this, you will be able to “automatically” think of the DR first.
PAGE 81
EXERCISE 7.5
You are required to complete the table showing the thinking process for recording
transactions, and then enter the transactions into the General Journal. The first
transaction has been recorded for you. Include GST where applicable.
Accounts Type of DR or
Date Transactions + or -
Involved Accounts CR
Mar 1 Sold goods for cash $920
7 Bought goods for cash $644
12 Sold goods on credit $1,840
Purchased goods on credit

16
$1,150
18 Paid advertising $276
27 Paid wages $810
PAGE 82
Date Particulars DR $ CR $
Mar 1
Mar 7
Mar 12
Mar 16
Mar 18
Mar 27
PAGE 83
EXERCISE 7.6
Prepare general journal entries for the following transactions of Wendy’s Wool
Supplies. Include GST where applicable.
2021
Nov 1 Owner invested $60,000 cash in the business
Paid one month’s rent of $1,380 on premises
2 Bought shop fittings for $6,900 cash
3 Purchased goods on credit, $11,500
4 Returned goods to suppliers, $1,035
6 Sold goods on credit, $1,840
7 Cash sales $1,380
8 Invested a van valued at $30,000 in the business
9 Wendy took $600 cash for personal use
10 Paid advertising $345
14 Paid suppliers on account $4,000
19 Charged customers freight on deliveries $92
20 Bought Weaving Machine on credit, $2,760
24 Paid telephone expense $460
25 Paid insurance $1,035
27 A credit customer returned goods $575
29 Cash purchases $1,380
30 Paid instalment of $400 on the Weaving Machine bought
20 Nov
Took wool home for own use (cost price $92, selling price $150)
PAGE 84
Wendy’s Wool Supplies
General Journal
2021
Nov 1
PAGE 85
7
10
12
14
15
19
20
PAGE 86
24
25
26
27
29
30
PAGE 87
EXERCISE 7.7
(a) Enter the following transactions into the General Journal of Darius Dog
Cleaning. Account for GST where applicable.
2021
Mar 3 Paid wages $100
6 Darius took cash drawings $50
10 Received cash fees $276
14 Darius contributed $2,000 to the business
18 Paid rent $207
31 Received cash fees $322
(b) Enter the balances below in the ledger accounts.
Darius Dog Cleaning

Trial Balance as at 1st March 2021
Bank 3,000 Capital 17,500
Van 15,000 GST payable 500
18,000 18,000
(c) “Post” the General Journal entries to the ledger accounts provided.
(d) Complete a Trial Balance.
PAGE 88
General Journal
March 3
10
14
18
31
Bank
Van
Capital
PAGE 89
Rent
GST
Fees
Wages
Drawings
Darius Dog Cleaning

Trial Balance
as at 31 March 2021
$ $
PAGE 90
EXERCISE 7.8
Enter the following information into the ledger accounts for Tyson’s Beauty
Services for month ending March 31 2022. Account for GST where appropriate.
Opening Balances are:
$2000 for Bank, $400 for drawings, $1000 for interest,

$350 for GST Payable, $2000 for Beauty fees
Transactions during March:
March 2nd – Paid interest to Quincy Jones $200

March 7th – Tyson took cash drawings $80
March 13th – Received cash fees for foot massage of Holyfield $184
March 25th – Paid interest $200
March 29th – Received cash fees $483 for Britney Speers’ nails
Bank
Drawings
Interest
PAGE 91
GST
Beauty Fees
Click here to watch a video about GST
PAGE 92
SECTION EIGHT FINANCIAL STATEMENTS
WHAT IS INVENTORY?
为了了转售⽬目的，该业务所购买的商品
• Goods purchased by the business for the purpose of resale
股票商品产品
• Also called stock or merchandise or goods 也称为库存或商品或商品
• Inventory is recorded at the lower of cost and net realisable value 存货按成本和可变现净值的较低
者计
• A physical stocktake is carried out under both systems to ascertain the correct
amount of stock on hand 在两个系统下进⾏行行实物盘点，以确定正确的库存数量量
销售收⼊入贸易易
A business that sells goods earns Sales Income and is called a Trading
Organisation. A Trading Organisation buys goods from a supplier and sells them to
customers. 销售商品的业务赚取销售收⼊入，被称为贸易易组织。贸易易组织从供应商处购买商品
并将其出售给客户。
This section will explain how to prepare financial statements for a Trading
Organisation. 本节将介绍如何为贸易易组织编制财务报表
EXERCISE 8.1
Make a list of trading organisations that you know of.
HOW DOES A TRADING BUSINESS MAKE A

PROFIT?
If the owner of the trading business is to make a profit, they must sell the goods (Sales
Income) at a higher price than what they bought them for (selling price must be greater
than cost price). Cost Price is usually called Cost of Goods Sold.
PAGE 93
+Purchases
-Purchases Returned
COST OF GOODS SOLD Includes
Cost of Goods Sold consists of any expenses that are incurred in getting the
goods into the location and condition where they can be sold.
When a Trading Business buys goods (inventory) to sell we call this Purchases.
Sometimes a business may return goods to the supplier – this is called Purchases
Returns. (Purchases Returns will reduce Cost of Goods Sold.)
Customs Duty is payable when goods are imported from overseas. This duty must
be paid before the Customs Department will release goods into the hands of the
purchaser.
Cartage or freight inwards is payable in order to get the goods to the location of
sale is also part of the cost of the goods. Cartage is a term used to describe the cost
of local delivery, for example the railway station to the warehouse. Freight is the term
used to describe long-distance carriage such as between cities or from overseas.
Packaging materials are sometimes used where a trader buys bulk supplies and
packages them into smaller amounts. An example of this may be a supermarket
which purchases a large quantity of rice, and later packages this rice into small
saleable packets.
All of these expenses must be paid to get the goods into a location
and condition where they can be sold – and therefore will be
included in Cost of Goods Sold.
NET SALES 净销售额

Sometimes a customer may return goods. This is called Sales Returns. Sales
Returns are deducted from Sales to find Net Sales.
Therefore, the calculation for Gross Profit is:
Tan's Wool Shop

Trading Statement
for the year ended 31 March 2023
$
Sales 100,000
Less Sales Returns 5,000
Net Sales 95,000
Less Cost of Goods Sold 62,500
Gross Profit 32,500
PAGE 94
PERPETUAL INVENTORY SYSTEM
There are two main systems for recording inventory in a business. When we
recorded the business transactions earlier we used the periodic system.
We will be using the perpetual inventory system to prepare the financial statements.
FEATURES OF EACH SYSTEM
PERIODIC PERPETUAL
Periodic means periodically or during Perpetual means continuous, on-going
the accounting period (at least once at
the end of the accounting period a
stocktake must be done)
Records of stock movements are NOT Records of stock movements are kept
kept throughout the accounting period throughout the accounting period.
This means that the balance of stock on This means that the balance of stock on
hand is only updated when a stock take hand is continually updated throughout
is carried out the period
In the perpetual inventory system, the inventory account will be adjusted when the
business buys or sells inventory. A ledger account for cost of goods sold will also
be used so that this is reported as one figure in the Income Statement.
PAGE 95
JOURNAL ENTRIES 分录
The following table compares the differences between the journal entries that we
did earlier with the ones that would be done for a perpetual inventory system.
TRANSACTION PERIODIC 期间制 PERPETUAL 永续盘存制

Purchase of stock for DR Purchases DR Inventory
cash DR GST DR GST
CR Bank CR Bank
With the cost price With the cost price
Purchase of stock on DR Purchases DR Inventory
credit DR GST DR GST
赊账 CR Accounts Payable CR Accounts Payable
With the cost price With the cost price
Cash Sales DR Bank DR Cost of Goods Sold
CR Sales CR Inventory 结转成本（成本价）
CR GST With the cost price
With the selling price
DR Bank
CR Sales
CR GST
Credit Sales DR Accounts Receivable DR Cost of Goods Sold
CR Sales CR Inventory
CR GST With the cost price
DR Accounts Receivable
CR Sales
赊销 CR GST
With the selling price.
Drawings of Stock DR Drawings DR Drawings
CR Purchases CR Inventory
取⽤用存货 CR GST
With the cost price
CR GST
With the cost price
PAGE 96
EXERCISE 8.2
Complete the following sentences.
Gross Profit
Profit for the period
If the expenses are higher than the gross profit, the business will make a
EXERCISE 8.3
Complete the following table. (The first one has been done for you as an example).
Cost of Profit
Sales Goods Gross Total (Loss) for
Sales Returns Net Sales Sold Profit Expenses the period
$ $ $ $ $ $ $
105,000 5,000 100,000 40,000 60,000 80,000 (20,000)
A 80,500 80,000 20,000 15,000
B 20,000 120,000 70,000 40,000
C 1,200 30,000 50,000 20,000
D 200,900 200,000 80,000 (20,000)
E 1,000 180,000 100,000 35,000
F 132,000 75,000 65,000 (10,000)
PAGE 97
FULLY CLASSIFIED FINANCIAL STATEMENTS FOR
A TRADING BUSINESS
The trial balance below is used to prepare the financial statements on the next two
pages.
Lee-Yins Supa City

Trial Balance
as at 31 March 2021
$ $
Accounts Receivable 5,300 Accounts Payable 10,000
Advertising 7,200 Capital (1 April 2020) 63,200
Bank 7,700 Discount Received 18,000
Office Equipment (cost) 12,000 Bank Loan (due 30 July 2024) 15,000
Motor Vehicle (cost) 18,000 Sales 450,000
Discount Allowed 1,200 GST Payable 1,250
Drawings 1,250
Electricity 1,800
Goodwill 10,000
Interest 3,600
Inventory (31 March 2021) 40,000
Cost of Goods Sold 369,500
Share in Other Companies 22,000
Sales Returns 10,000
Rent 6,000
Repairs 1,000
Stationery 2,000
Telephone Expenses 2,400
Delivery Expenses 4,500
Shop Wages 32,000
$557,450 $557,450
PAGE 98
FULLY CLASSIFIED INCOME STATEMENT FOR A
TRADING BUSINESS
Lee-Yins Supa City
Income Statement (Profit?)
Notes $ $ $
Revenue 1 440,000
Less: Cost of Goods Sold 369,500
GROSS PROFIT 70,500
Plus: Other Income 2 18,000
TOTAL INCOME 88,500
LESS: EXPENSES
Distribution Costs
Advertising 7,200
Delivery Expenses 4,500
Shop Wages 32,000
43,700
Administrative Expenses
Electricity 1,800
Rent 6,000
Repairs 1,000
Stationery 2,000
Telephone Expenses 2,400 DC+AE
Discount Allowed 1,200 14 400 58,100 Operating
Expenses
Operating profit before interest 30,400
Less: Finance Costs
Interest 3,600
Profit for the Period 26,800
Notes to the Income Statement:
1 Revenue
Sales 450,000
Less: Sales returns 10,000 440,000
2 Other income
Discount received 18,000
Please Note:
 The top section of the Income Statement is the same as the Trading
Statement we prepared in the previous section.
 The rest of the statement is presented in the same way as the Income
Statement for a Service business.
PAGE 99
全⾯面分类的贸易易融资财务报表（资产负债表）
FULLY CLASSIFIED STATEMENT OF FINANCIAL
POSITION (BALANCE SHEET) FOR A TRADING
ORANISATION
Lee-Yins Supa City
as at 31 March 2021
Assets Notes NZ$ NZ$ NZ$
Current Assets
Cash at Bank 7,700
Inventory (31 March 2021) 40,000
Total Current Assets 53,000
Non-current Assets
Property, Plant and Equipment 1 30,000
Intangible Assets
Goodwill 10,000
Investment Assets
Shares in other companies 22,000
Total Non-current Assets 62,000
Total Assets 115,000
Less Liabilities
Current Liabilities
Accounts Payable 10,000
GST Payable 1,250
Total Current Liabilities 11,250
Non-current Liabilities
Bank Loan (due 30 July 2024) 15,000
Total Non-current Liabilities 15,000
Total Liabilities 26,250
NET ASSETS 88,750
Equity 2
Notes to the Statement of Financial Position (Balance Sheet)
1 Property, Plant and Equipment
Office Equipment Motor Vehicle Total
Cost 12,000 18,000 30,000
2 Equity
Capital 1 April 2020 63,200
Plus Profit for the period 26,800
Less Drawings 1,250
PAGE 100
EXERCISE 8.4
The following Trial balance was prepared for Coffee Delivery Supplies as at 31
March 2021:
Coffee Delivery Supplies

Trial Balance as at 31 March 2021
$ $
Accounts Receivable CA 7,400 Accounts Payable 33,000
Bank CA 11,000 Commission 20,600
Car (cost) 60,000 Discount Received 3,400
Cost of Goods Sold 320,000 GST Payable 1,000
Delivery van (cost) 31,000 Mortgage (due 2034) 526,000
Discount Allowed 1,200 Rent 20,000
Drawings 42,000 Sales 800,000
Electricity 3,800
General expenses 1,400
Interest 38,800
Inventory (31 March 2021) CA 40,600
Land (cost) 250,000
Premises (cost) 720,000
Rates 4,000
Salaries – Office 45,000
Telephone Expense 1,800
Delivery van expenses 17,800
Wages – Shop 27,000
$1,626,000 $1,626,000
(a) Prepare a fully classified Income Statement.
(b) Prepare a fully classified Statement of Financial Position (Balance Sheet).
PAGE 101
Income Statement
Notes $ $ $
PAGE 102
1 Revenue
2 Other income
PAGE 103
as at 31 March 2021
Notes $ $ $
PAGE 104
Notes to the Statement of Financial Position (Balance Sheet):
2 Equity
PAGE 105
EXERCISE 8.5
Gardener’s Delight
Trial Balance as at 30 June 2021
$ $
Accounts Receivable 6,100 Accounts Payable 68,200
Cartage Outwards 8,100 Bank 4,500
Cost of Goods Sold 484,600 Capital (1 July 2020) 213,400
Discount allowed 2,100 Discount received 3,000
Mortgage (due 31 May
Drawings 68,000 270,000
2038)
Electricity 7,000 Sales 790,000
General Expenses 1,600
GST Receivable 300
Goodwill (cost) 20,000
Insurance 2,800
Interest 12,600
Inventory (30 June 2021) 63,200
Land and Buildings (cost) 520,000
Sales Returns &
9,500
allowances
Sales Commission 13,600
Travelling Expenses 16,600
Wages – Office 63,000
$1,349,100 $1,349,100
PAGE 106
Gardener's Delight
Income Statement
for the year ended 30 June 2021
Notes $ $ $
PAGE 107
1 Revenue
2 Other income
PAGE 108
Gardener's Delight
as at 30 June 2021
Notes $ $ $
PAGE 109
2 Equity
PAGE 110
EXERCISE 8.6
Chan’s Shop
$ $
Equipment 10,000 Capital (1 April 2025) 21,150
Vehicles 15,000 Accounts payable 2,500
Accounts receivable 2,800 Loan 5,000
Inventory (31 March 2026) 750 Discount received 500
Bank 1,300 Sales 7,000
GST Receivable 200
Cost of Goods Sold 1,950
Sales returns 500
Advertising 800
Petrol & Oil 200
Rent 1,200
Telephone calls 400
Discount allowed 300
Interest on loan 250
Accounting fees 350
Rates 100
Cartage outwards 50
$36,150 $36,150
PAGE 111
Chan’s Shop
Income Statement
__________________________________________________
Notes $ $ $
PAGE 112
1 Revenue
2 Other income
PAGE 113
Chan’s Shop
____________________________________________________
Notes $ $ $
PAGE 114
2 Equity
PAGE 115
EXERCISE 8.7
Beeton Traders
$ $
Inventory, 31 March 2020 5,278 Discount Received 380
Bad Debts 1,760 Accounts Payable 3,600
Cost of Goods Sold 177,202 Bank 4,536
Insurance 1,600 Capital, 1 April 2019 109,896
Accounts Receivable 4,700 Mortgage (due 2028) 24,000
Discount Allowed 132 Sales 359,882
Shares in Mars Ltd 600 GST Payable 400
Salesman’s Salary 49,464
Petty Cash 120
Office Expenses 366
Advertising 1,682
Land 42,800
Buildings 120,000
Salesman's Expenses 1,688
Interest on Mortgage 2,160
Equipment 25,260
Sales Returns 52
Drawings 3,420
Freight Outwards 754
Sales Wages 18,892
Goodwill 2,000
Rates 2,400
Office Salaries 40,364
$502,694 $502,694
PAGE 116
Beeton Traders
Income Statement
____________________________________________________
Notes $ $ $
PAGE 117
1 Revenue
2 Other income
PAGE 118
Beeton Traders
__________________________________________________
Notes $ $ $
PAGE 119
2 Equity
PAGE 120
End of
financial SECTION NINE Changes
year — BALANCE DAY ADJUSTMENTS (BDA'S)
The life of a business is divided into periods of equal length, usually one year. This
means that the profit for the period can be calculated, and accurately compared with
the profit from other accounting periods and other businesses. This makes it easier
to see how efficiently the business has been operating.
However, not all transactions fit nice and neatly into an accounting period. Therefore
certain adjustments have to be made, to ensure that each transaction is accurately
recorded in the period that it occurred regardless of whether cash has changed
hands. The adjustments are called Balance Day Adjustments. In other words, the
adjustments that are made on Balance Day are the last day of the financial period.
Why do we need them?

• Because income and expenses received or paid during an accounting period
do not always relate to that period.
• Transactions may “straddle” two accounting periods.
• Because the business needs to recognise assets and liabilities.
What to do …
• Adjust (change) the amount of income and expenses SO THAT …
• Assets and Liabilities are recognised and revenue and expenses relate to
the correct period. Net profit for the period and the Statement of Financial
Position (Balance Sheet) will be correct.
RELATED ACCOUNTING CONCEPTS

1 Period Reporting
The life of the business is divided into periods of equal length for reporting purposes
so comparisons can be made.
2 Accrual Accounting
All transactions are recognised when they occur, not just when cash changes hands.
This means that financial statements prepared using accrual accounting inform users
not only of past transactions but also of obligations to pay cash or provide a good or
service in the future and of resources that represent cash to be received in the
future.
Click here to watch an introductory video about Balance Day Adjustments
PAGE 121
THE ACCOUNTING PROCESS WITH
BALANCE DAY ADJUSTMENTS
TRANSACTIONS
SOURCE DOCUMENTS
JOURNALS
GENERAL LEDGER
TRIAL BALANCE
ADJUSTED TRIAL BALANCE
FINANCIAL STATEMENTS
• INCOME STATEMENT
• STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
• CASH FLOW STATEMENT
PAGE 122
BAD DEBTS AND ALLOWANCE FOR DOUBTFUL
DEBTS
Bad Debts (AE) ———Section 4

Bad debts arise from accounts receivable that are not going to pay their accounts.
The debt needs to be ‘written off’. Writing off bad debts reduces accounts
receivable, since they represent a known amount which is owed to the business but
which will not now be collected.
Remember, the amount being written of will include GST, which must be accounted
for.
General Journal Entry - Bad Debts
These are Accounts Receivable who we know will not pay us back.
These must be removed from Accounts Receivable; therefore a general journal entry
is necessary
Example: write off bad debts of $920 (including GST)
DR CR
Bad Debts(Expense) 800
GST (Receivable) 120
Accounts Receivable (CA ) 920
Question: Accounts Receivable was valued at $15,000. What is the value now (after
writing off the bad debts)?
_______________________________________________________________
Question: Why do we debit GST?
_______________________________________________________________
Question: What would GST be valued at if it was a current liability of $8,000 before
writing off the bad debts?
_______________________________________________________________
PAGE 123
Doubtful Debts
From past experience we know that some debtors will not pay their accounts, but we
are not sure who these debtors will be. Therefore we must not change Accounts
Receivable but create an “allowance for doubtful debts” which is contra asset
(negative asset).
Question: Which accounting concept is being applied in the above extract?
General Journal Entry - Allowance for Doubtful Debts
The Allowance for Doubtful Debts shows the estimated Accounts Receivable which
are unlikely to be collected – i.e. may not be received in the following period.
At the end of the accounting period – at Balance Day – the percentage of doubtful
debts is estimated. This becomes the Allowance for Doubtful Debts, and is treated
as a ‘contra’ account to Accounts Receivable.
Doubtful Debts(expense ) DR
Allowance for Doubtful Debts CR
This entry: Negative AR

• Increases the expenses (doubtful debts) for the financial period by making an
allowance for those debts that are considered doubtful
• Creates, or adjusts, the contra account of Allowance for Doubtful Debts i.e.
Accounts Receivable
If there is already an existing Allowance, and the estimate is different to the existing
Allowance, the existing Allowance must be adjusted. To adjust the Allowance:
1. Calculate the estimated amount of the Allowance.

2. Subtract the existing allowance.
3. Record the general journal entry (as above) for the difference e.g.
Doubtful Debts expense DR

Allowance for Doubtful Debts CR
PAGE 124
EXAMPLE:
Year 1 – Creating the Allowance

If there is no previous allowance then one may need to be created. A general
journal entry is necessary.
Example: Create an allowance for doubtful debts of 5% of Accounts Receivable

($10,000). Note that the allowance is always expressed as a percentage of
accounts receivable because if relates directly to this figure.
Question: do we use the accounts receivable figure before or after making the
adjustment for bad debts? Why?
DR CR
Doubtful Debts 500
Allowance for Doubtful Debts 500
Note: We do not adjust Accounts Receivable directly, so there is no external party

involved, and so there is no GST involved.
Doubtful Debts will then go to the Income Statement as an Administrative expense.
Allowance for doubtful debts is deducted from Accounts Receivable in the Note for
Accounts Receivable for the Statement of Financial Position (Balance Sheet).
Notes to the Accounts
1. Accounts Receivable

Less: Allowance for Doubtful Debts 500 9,500
PAGE 125
Year 2 – Adjusting the Allowance
We have already created the allowance but may want to make it larger. What do we
do?
Let us say our Accounts Receivable figure has changed to $17,000 (after already
writing off bad debts, remember!). We still want it to be 5% of Accounts Receivable.
Note that we already have an allowance still from last year. (Adjust to $850 from
$500).
DR CR
Doubtful Debts Expense 350
Doubtful debts expense of $ _____will then go to the Income Statement as an

Administrative expense.
Allowance for doubtful debts is deducted from Accounts Receivable in the Note for
Accounts Receivable for the Statement of Financial Position (Balance Sheet).
Notes to the Accounts
Accounts Receivable $17,000

Less: Allowance for Doubtful Debts 850 16150
PAGE 126
EXERCISE 9.1
A Firm has an accounts receivable balance of $15,000 at 31 March. Based on
previous experience, it is estimated that 2% of these will be uncollectible.
(a) Prepare the journal entry necessary to create the allowance for doubtful debts.
A Firm
General Journal
(b) Prepare extracts from the financial statements to show how this information will
be disclosed.
A Firm
Income Statement (extract)
for the year ended 31 March 200X
$ $ $
A Firm
Statement of Financial Position (Balance Sheet) (extract)
as at 31 March 200X
Note $ $
Current Assets
Accounts Receivable 1
Note to the Statement of Financial Position (Balance Sheet):
Accounts Receivable
Less: Allowance for Doubtful Debts
PAGE 127
REMEMBER!
The allowance for doubtful debts reduces accounts
receivable to the amount which is expected to be
collected in cash.
EXERCISE 9.2
Another Firm has an accounts receivable balance of $25,000 at 30 June. It is
estimated that 5% of these will be uncollectible.
(a) Prepare the journal entry necessary to create allowance for doubtful debts.
Another Firm
General Journal
(b) Prepare extracts from the financial statements to show how this information will
be disclosed.
Another Firm
for the year ended 31 March 200X
$ $ $
PAGE 128
Another Firm
as at 31 March 200X
Notes $ $
Current Assets
EXERCISE 9.3
A firm has an allowance for doubtful debts of $800 and accounts receivable of $32,000.
What percentage of accounts receivable is considered to be uncollectible?
WORKINGS:
% Accounts Receivable Uncollectable =
PAGE 129
INCREASING THE ALLOWANCE FOR DOUBTFUL
DEBTS
1 Write off any bad debts first and calculate the new balance of accounts
receivable.
2 Calculate the required balance of the allowance for doubtful debts.
3 Increase the allowance with the difference between the balance of the
existing allowance and the new balance with this journal entry:
DR Doubtful Debts
CR Allowance for Doubtful Debts
EXERCISE 9.4
Yet Another Firm
Trial Balance (extract) as at 31 March 2014
$ $
Accounts Receivable 90,000 Allowance for doubtful debts 4,000
Additional information:
At the end of the financial year management has decided that the allowance for
doubtful debts should be adjusted to 5% of accounts receivable.
(a) Prepare the journal entry necessary to adjust the allowance for doubtful debts.
Yet Another Firm

General Journal
PAGE 130
(b) Show the Doubtful Debts account and the Allowance for Doubtful Debts
account, as they would appear in the ledger.
DOUBTFUL DEBTS
ALLOWANCE FOR DOUBTFUL DEBTS
(c) Show how this information would appear in the financial statements at the end
of the financial year.
Yet Another Firm

$ $ $
Yet Another Firm

as at 31 March 2014
Notes $ $ $
Current Assets
PAGE 131
EXERCISE 9.5
A Business
$ $
Accounts Receivable 40,000 Allowance for doubtful debts 500
GST 300
At the end of the year it has been decided to write off $460 of accounts receivable
(including GST) and adjust the allowance for doubtful debts to 2% of the outstanding
accounts receivable.
(a) Prepare the journal entries necessary to account for these adjustments.
A Business
General Journal
(b) Show how this information would appear in the financial statements.
A Business
$ $ $
PAGE 132
A Business
as at 31 March 2018
Notes $ $
Current Assets
Current Liabilities
EXERCISE 9.6
A Firm
Trial Balance (extract) as at 30 June 2016
$ $
Accounts Receivable 36,020 Allowance for doubtful debts 600
Bad Debts 2,000
GST 300
Management has decided to write off a further $920 (including GST) of accounts
receivable and adjust the allowance to 2% of the outstanding accounts receivable.
(a) Prepare the journal entries necessary to account for these adjustments.
A Firm
General Journal
PAGE 133
(b) Show the Bad Debts, Doubtful Debts and Allowance for Doubtful Debts
accounts as they would appear in the ledger.
BAD DEBTS
DOUBTFUL DEBTS
ALLOWANCE FOR DOUBTFUL DEBTS
(c) Show how this information would appear in the financial statements.
A Firm
$ $ $

as at 30 June 2016
Notes $ $
Current Assets
Note to the Statement of Financial Position (Balance Sheet)

Click here to watch a video about Bad and Doubtful Debts
PAGE 134
DEPRECIATION OF PROPERTY, PLANT AND
EQUIPMENT
DO YOU REMEMBER YOUR DEFINITION OF AN ASSET?
Assets are resources controlled by the entity as a result of past events (usually
transactions) from which future economic benefits are expected to flow to the entity.
WHAT IS DEPRECIATION?
Depreciation is the systematic allocation of the depreciable amount of an asset

over its useful life.
The depreciable amount of the asset is its cost less residual value.
Residual value is the amount the business thinks it might receive at the end of the
useful life of the asset when it sells or disposes of it.
Useful life is the period over which an asset is expected to be available for use by
an entity.
Depreciation can be considered as a measure of the use of the economic

benefits contained in the asset in each period the business has the asset.
There are a number of ways to calculate the depreciation expense. We need to

examine two of these methods.
(1) Straight Line method Depreciation for each year is same
Under this method the depreciation expense on the asset is the same every year. This
can be calculated using the formula:
Depreciation Expense = Original cost – estimated resale (residual) value

Estimated life (economic life)
PAGE 135
Example: Straight Line method
Office furniture is purchased for $12,800. The estimated life of the furniture is five
years and the estimated residual value is $800. Using the above formula calculate the
annual depreciation expense.
Depreciation = 12,800 – 800 = $2,400 per annum

5
The journal entry to record this depreciation is
DR$ CR$
Depreciation Expense – Office Furniture 2,400
Accumulated Depreciation – Office Furniture 2,400
The debit entry of Depreciation would be treated as an administrative expense in the

Income Statement (thereby decreasing profit).
The credit entry would be shown in the Statement of Financial Position (Balance
Sheet) as a contra asset – it is deducted from the cost of the asset in the Note for
Property, Plant and Equipment as shown below.
The figure in column two is known as the carrying amount or book value.
REMEMBER:
Carrying amount = Historical Cost – Accumulated Depreciation
Non-current Assets Note

Notes to Statement of Financial Position (Balance Sheet):

1. Property, Plant & Equipment
$ $
For the year ended 31 March 2xxx Office Furniture Totals
Carrying amount 1 April 2xxx 12,800 12,800
Depreciation 2,400 2,400
Carrying amount 31 March 2xxx 10,400 10,400
As at 31 March 2xxx
Cost 12,800 12,800
Accumulated depreciation 2,400 2,400
PAGE 136
In year two the depreciation expense is the same, accumulated depreciation has now
increased to $4,800 and would appear as follows:
Non-current Assets Note

Notes to Statement of Financial Position (Balance Sheet):

$ $
For the year ended 31 March 2xxx Office Furniture Totals
Carrying amount 1 April 2xxx 10,400 10,400
Depreciation 2,400 2,400
As at 31 March 2xxx
Cost 12,800 12,800
Accumulated depreciation 4,800 4,800
The advantages of the straight line method are that it is:

• More appropriate where the benefits from fixed asset are roughly equal in each
period, e.g. furniture and buildings.
• Simple to use
The disadvantages of the straight line method are that it does not:
• Take into account the degree of usage, age or efficiency of the fixed asset
• Allow for the likelihood of greater cost of repairs in the later life of the fixed asset
due to wear in earlier accounting periods.
Alternative Calculation
Straight Line depreciation can also be calculated simply as a percentage of the cost
price of the asset.
Click here to watch a video about Straight Line Depreciation
PAGE 137
(2) Diminishing Value (Balance)/Reducing Balance method
The depreciation expense reduces every year. This means that most of the
depreciation expense will be recorded at the start of the asset’s useful life.
Method of calculation:
Depreciation expense = Depreciation Rate (%) x Carrying Amount
(Carrying Amount = Cost – Accumulated Depreciation)
A major difference with D.V. method is that the residual value is not subtracted from
the original cost before calculations are made. The object of using this method is that
residual value is arrived at after the estimated life of the asset has elapsed.
Example: Diminishing Value (Balance) method
A motor vehicle is bought on 1 April for $10,000 and has an estimated residual value
of $4,000. The rate of depreciation is 20 per cent of the diminishing balance.
Calculate the amount of depreciation for four years, after which time it is company
policy that the vehicle be sold.
Calculated depreciation:
Amount of Diminished balance or

Year Basis for calculation
depn carrying amount
1 20% of original cost of $10,000 $2,000 $10,000 - $2,000 = $8,000
2 20% of diminished balance $8,000 $1,600 $8,000 - $1,600 = $6,400
3 20% of diminished balance $6,400 $1,280 $6,400 - $1,280 = $5,120
4 20% of diminished balance $5,120 $1,024 $5,120 - $1,024 = $$4,096
(Adjustment necessary to bring
residual value to $4,000) $96 $4,096 - $96= $4,000
PAGE 138
Depreciation Schedule
Cost Carrying Depreciation Accumulated Carrying

Amount (beg) Expense Depreciation Amount (end)
$10,000 $10,000 $2,000 $2,000 $8,000
$8,000 $1,600 $3,600 $6,400
$6,400 $1,280 $4,880 $5,120
$5,120 $1,024 $5,904 $4,096
Adjustment $96 $6,000 $4,000
Advantages of the diminishing balance method are:
• It is suitable for use where the service rendered by the asset is greatest in the
early years of its life, e.g. in the case of motor vehicles machinery. The greatest
charges against income occur in the periods where the greatest benefits are
obtained.
• The depreciation charge is lower as the asset becomes older and when there is
likelihood of higher maintenance costs. This has the effect of evening out the
overall charge against each period’s income.
REMEMBER:
CARRYING AMOUNT =
HISTORICAL COST – ACCUMULATED DEPRECIATION
PAGE 139
EXERCISE 9.7
A firm purchased a truck for deliveries costing $92,000 (including GST) on 1 April
2024. It had an estimated useful economic life of 5 years, after which time it was to
be sold for $46,000 (including GST). The firm’s balance date is 31 March.
i. Calculate the annual depreciation expense.
Calculation:
ii. Show the general journal entries to record the depreciation expense for
i Year 1 ii Year 2
General Journal
2025
Mar 31
2026
Mar 31
PAGE 140
iii. Show how depreciation would appear in the Financial Statements in;
i Year 1 ii Year 2

$ $ $
Distribution Costs

as at 31 March 2025
Note $ $
Non-Current Assets

Delivery Total
Truck
For year ended 31 March 2025
Carrying Amount 1 April 2024
Depreciation
Carrying Amount 31 March 2025
As at 31 March 2025
Cost
Accumulated Depreciation
PAGE 141
Distribution Costs $ $ $

as at 31 March 2026
Note $ $
Non-Current Assets


As at 31 March 2026
Cost
PAGE 142
EXERCISE 9.8
(Straight line based on a given % - no salvage value or length of economic life
given)
The following balances have been extracted from the ledger of a trucking firm on 31
March 2020.
Trucks 400,000 Dr Accumulated Depreciation – 160,000 Cr

Trucks
Equipment 50,000 Dr Accumulated Depreciation – 15,000 Cr
Equipment
Furniture 3,000 Dr Accumulated Depreciation – 900 Cr
Furniture
The firm’s depreciation policy provides for depreciation to be charged at 20% per
annum based on cost for trucks and 10% per annum based on cost for all other
assets.
(a) Prepare the necessary journal entry or entries to record the depreciation
expense for the year.
(b) Show the following ledger accounts relating to each fixed asset after these
entries have been posted:
i. Asset account
ii. Depreciation expense account
iii. Accumulated Depreciation account
A Trucking Firm
General Journal
PAGE 143
TRUCK
DEPRECIATION - TRUCK
ACCUMULATED DEPRECIATION - TRUCK
EQUIPMENT
DEPRECIATION - EQUIPMENT
ACCUMULATED DEPRECIATION - EQUIPMENT
PAGE 144
FURNITURE
DEPRECIATION - FURNITURE
ACCUMULATED DEPRECIATION - FURNITURE
PAGE 145
EXERCISE 9.9
A firm paid $100,000 (excludes GST) for a new item of machinery. It is expected to
be used for 5 years, then scrapped and new machinery purchased.
The firm is trying to work out the best depreciation policy for the equipment. It will
either be depreciated using the straight line method, or diminishing value method
based on 60%.
Prepare a depreciation schedule for the machine for a five year period based on:
(a) straight line depreciation
(b) depreciation based on 60% D.V.
Machine
Depreciation Schedule – Straight Line
Year Historical Carrying Depreciation Accumulated Carrying
Cost Amount Expense Depreciation Amount
(Opening) (Closing)
1
2
3
4
5
Machine
Depreciation Schedule – Diminishing Value
Year Historical Carrying Depreciation Accumulated Carrying
Cost Amount Expense Depreciation Amount
(Opening) (Closing)
1
2
3
4
5
PAGE 146
EXERCISE 9.10
The trial balance below is taken from Action Accountants as at 30 June 2027.
Action Accountants
Trial Balance as at 30 June 2027
$ $
Computer (cost) 5,000 Accumulated depreciation -
Equipment (cost) 22,000 Computer 2,000
Delivery Van (cost) 30,000 Equipment 2,200
Delivery Van 5,700
Additional Information:
Depreciation is to be provided on computers at 20% p.a. on cost; equipment and
delivery van at 10% p.a. by diminishing value method.
(a) Show the General Journal entries to record the depreciation.
Action Accountants
General Journal
PAGE 147
(b) Prepare extracts to show how depreciation would appear in the financial
statements.
Action Accountants
$ $ $
Distribution Costs

as at 30 June 2027
Note $ $
Non-Current Assets
For year ended 30 June 2027

Carrying Amount 1 July 2026
Carrying Amount 30 June 2027

As at 30 June 2027
Cost
Carrying Amount 30 June 2027
PAGE 148
EXERCISE 9.11
Mighty Mouse bought a computer system costing $13,800 (including GST) on 1
April 2022. The financial year ends on 31 March each year. The firm has a
depreciation policy based on diminishing value, and recommends that the computer
system be depreciated at 30% per annum based on diminishing value.
(a) Calculate the annual depreciation expense for years 1, 2 and 3.
Calculation:
Depreciation Expense Year 1 =
Calculation:
Calculation:
PAGE 149
(b) Show the general journal entries to record the depreciation expense for
a. Year 1
b. Year 2
c. Year 3
General Journal
2023
2024
2025
(c) Prepare an extract to show how depreciation would appear in the Financial
Statements in Year 3.

Expenses $ $ $

as at 31 March 2025
Note $ $
Non-Current Assets
PAGE 150
For the year ended 31 March 2025


As at 31 March 2025
Cost
Click here to watch a video about Diminishing Value Depreciation
PAGE 151
EXERCISE 9.12
The trial balance (extract) below is taken from Looking Good as at 31 March 2020.
Looking Good
$ $
Motor vehicle (cost) 30,000 GST 40
Accounts Receivable 2,510 Accumulated Depreciation
Bad Debts 200 - Motor Vehicle 12,000
Shop Fittings (cost) 8,000 - Shop Fittings 1,600
Allowance for doubtful debts 110
• Inventory on hand at 31 March 2020, $85,000.

• Further Accounts Receivable of $460 (including GST) has to be written off and
an allowance for doubtful debts is adjusted to 10% of any outstanding Accounts
Receivable.
• Depreciation is to be provided on shop fittings at 10% per annum based on cost
and on the motor vehicle at 20% per annum diminishing value.
PAGE 152
(a) Show the General Journal entries to record the bad debts, allowance for
doubtful debts, and depreciation at 31 March 2020.
General Journal
(b) Prepare extracts to show how the adjustments in (a) would appear in the
financial statements.

$ $ $
Distribution Costs
PAGE 153
as at 31 March 2020
Notes $ $
Current Assets
Non-Current Assets


As at 31 March 2020
Cost
PAGE 154
OTHER BALANCE DAY ADJUSTMENTS
Accrued Expenses Owing,Due,unpaid,outstanding
Accrued expenses are expenses incurred in the current accounting period that have
not yet been paid.
‘Expense’ Account Dr
Accrued Expenses CL Cr
This entry:
(a) Increases the “Expense” account to the amount it should have been
(b) Creates a Liability account – Accrued Expenses – because at Balance Day

money is owed by the business
Accrued Income
Accrued Income is income that has been earned in the current accounting period but
has not yet been received.
Accrued Income CA Dr
‘Income’ Account Cr
This entry:
(a) Increases the “Income” account to the correct amount
(b) Creates an Asset account – Accrued Income – because at Balance Day

money is owed to the business
PAGE 155
Prepayments
Prepayments are prepaid expenses that have been paid in the current accounting
period, but actually relate to a future accounting period. These are expenses that
have been paid but have not yet been incurred. In other words, they have been paid
in advance.
Prepayments CA Dr
‘Expense’ Account Cr
This entry:
(a) Decreases the “Expense” account, as the extra money paid does not belong
to this accounting period.
(b) Creates an Asset account – Prepayments – because the business has paid
an extra amount of money and at balance Day is still owed the goods and/or
services
Received
Income in Advance
Income in Advance are revenues that have been received in the current accounting
period, but have not yet been earned – i.e. the goods and/or services will not be
provided until a future accounting period.
Income Account Dr
Income in Advance CL Cr
This entry:
(a) Decreases the “Income” account, as the extra money received does not
belong to this accounting period
(b) Creates a Liability account – Income in Advance – as, at Balance Date, the
business still owes Goods and/or Services
PAGE 156
BALANCE DAY ADJUSTMENTS - SUMMARY
1. Accrued Expenses CL
• Example – wages are owing/outstanding on balance day $400. In the Trial
Balance the wages expense is $50,000.
General Journal:
DR CR
Wages 400
Accrued Expenses 400
Income Statement (extract) Statement of Financial Position

(Balance Sheet) (extract)
Administrative Expenses Current Liabilities
Wages ($50,000+$400) 50,400 Accrued Expenses 400
2. Prepayments (Prepaid Expenses)

• Example – prepaid rent for next year $9,200 (including GST). In the Trial Balance
the rent expense is $40,000
General Journal:
DR CR
Prepayments 8,000
Rent 8,000

Administrative Expenses Current Assets
Rent ($40,000 - $8,000) 32,000 Prepayments 8,000
3. Accrued Income
• Example – Dividends have not been received $1,000. In the Trial Balance we
have received dividends of $5,000 so far this year.
General Journal:
DR CR
Accrued Income 1,000
Dividends 1,000

Other Income Current Assets
Dividends ($5,000 + 1,000) 6,000 Accrued Income 1,000
PAGE 157
4. Income Received in Advance (Income in Advance or Prepaid Revenue or
Unearned Revenue)
• Example – We have received $3,680 rent in advance for next year. In the Trial
Balance the Rent received figure is $30,000.
General Journal:
DR CR
Rent received 3,200
Income in advance 3,200

Other Income Current Liabilities
Rent Received ($30,000 – 3,200)26,800 Income in Advance 3,200
5. Depreciation (straight line method) on cost *（10%*cost）=Dep for this year

• Depreciate Buildings at 10% pa using the straight line method. Buildings
(cost) $400,000. There is currently $80,000 Accumulated Depreciation related
to Buildings in the Trial Balance.
General Journal:
DR CR
Depreciation - Buildings 40,000
Accumulated Depn - Buildings 40,000

Administrative Expense Property, Plant and Equipment
Depreciation - Buildings 40,000 Buildings (cost) 400,000
Less Accum Depn 120,000
280,000
6. Depreciation (Diminishing Value/Balance) 20%*（cost-accumulate dep before ）
• Depreciate Delivery Vehicles at 20% pa using the diminishing value
method. Vehicles (cost) $500,000. There is currently $100,000
Accumulated Depreciation related to Vehicles in the Trial Balance.
General Journal:
DR CR
Depreciation - Delivery Vehicles 80,000
Accumulated Depn – Delivery Vehicles 80,000

Distribution Costs Property, Plant and Equipment
Depreciation - Vehicles 80,000 Vehicles (cost) 500,000
Less Accum Depn 180,000
320,000
PAGE 158
7. Bad Debts
• Example – Accounts Receivable of $5,520 need to be written off as bad.
Before writing the bad debts off, the balance of Accounts Receivable was
$60,000 and the balance of GST was $2,000 payable.
General Journal:
DR CR
Bad Debts 4,800
GST 720

Administrative Expenses $ Current Assets $
Bad Debts 4,800 Accounts Receivable 54,480
Current Liabilities
GST (2,000 – 720) 1,280
8. Allowance for Doubtful Debts

• Example – A business has an allowance for doubtful debts of $1,000. The
balance of Accounts Receivable is $80,000 before writing off bad debts of
$5,000. The allowance for doubtful debts is to be adjusted to 2% of Accounts
Receivable.
General Journal:
DR CR
Doubtful Debts 500

Administrative Expenses $ Current Assets $
Doubtful Debts 500 Accounts Receivable 75,000
Less Allowance for D.D. 1,500
PAGE 159
9. Invoices to Debtors for Fees or Sales dated prior to Balance Day but not yet
processed
• Example – A business has invoices on hand to send to debtors dated 29 June
2023 for $10,800 (incl GST). Balance day is 30 June. These have not yet
been processed. Total sales are currently $250,000 and total Accounts
Receivable are $80,000.
General Journal:
DR CR
Sales 9,600
GST 1,200

Income ($) Current Assets ($)
Sales 259,600 Accounts Receivable 90,800
Current Liabilities
GST 1,200
A similar adjustment can also be made for invoices from creditors for
Purchases dated prior to Balance Day but not yet processed. Can you work
out what this would be?
Balance Day Adjustments involve either adjusting existing assets or liabilities or

recognising new assets or liabilities on balance day.
PAGE 160
ADJUSTING EXISTING ASSETS OR LIABILITIES
ASSET EXAMPLES
Accounts Receivable • Bad Debts (writes value down directly)
• Doubtful Debts (contra asset Allowance for
Doubtful Debts reduces value of Accounts
Receivable)
• Invoices to debtors for Fees or Sales dated prior
to balance day that have yet to be processed (to
increase the value of Accounts Receivable)
Property, Plant and • Depreciation (contra asset Accumulated

Equipment Depreciation reduces value of PPE)
LIABILITIES EXAMPLES
Accounts Payable • Invoices from creditors for Purchases dated
prior to balance day that have yet to be
processed (to increase the value of Accounts
Payable)
RECOGNISING NEW ASSETS OR LIABILITIES
ASSET EXAMPLES
Prepayments Wages, rent, advertising (if inclusive of GST divide by
1.15)
Accrued Income Limited to interest and dividends (no GST)
LIABILITIES EXAMPLES
Accrued Expenses Limited to wages and interest (No GST)
Income in Advance Commission Received, Rent received (if inclusive of

GST divide by 1.15)
PAGE 161
EXERCISE 9.13
Punk’s Drum Shop
Original Adjust New Original Adjust New
Balance ment Balance Balance ment Balance
+/- +/-
Insurance 3,000 Interest received 5,000
Shop wages 15,000 GST payable 2,000
Rent received 5,000
The following adjustments are required on balance day:

• Insurance includes $920 (inclusive of GST) paid in advance for next year.
• Interest is due but not received on Term deposit, $600.
• Shop wages are owing of $400.
• Rent has been received in advance of $299 (including GST).

(a) Complete the General Journal Entries required.
GENERAL JOURNAL
(b) Adjust the Trial Balance above to account for the Balance Day Adjustments.
(c) Prepare the following extracts of Income Statement and Statement of

Financial Position as at 31 March 2021.
PAGE 162
Punk’s Drum Shop
Income Statement (extract) for the year ended 31 March 2021
Income: Note $
Expenses:
Note to the Income Statement:
1 Other Income
Punk’s Drum Shop

Statement of Financial Position (extract) as at 31 March 2021
Current Assets: $ $
Current Liabilities:
Click here to watch videos about the Other Balance Day Adjustments
PAGE 163
EXERCISE 9.14
Island-Life T Shirts
Original Adjust New Original Adjust New
Balance ment Balance Balance ment Balance
+/- +/-
Accounts Receivable 3,002 GST payable 2,000
Bad debts 400 Rent received 5,000
Rates 2,000 Allowance for doubtful debts 100
Interest on loan 5,400 Accumulated Depreciation - 2,000
Shop Equip
Shop Equipment 20,000 Accumulated Depreciation - 5,000
Vehicles
Vehicles 25,000 Dividends received 1,300
Shares in Datacom 10,000

• Write off further Accounts Receivable $92.
• Adjust allowance for doubtful debts to 5% of Accounts Receivable.
• Rates of $126.50 (inclusive of GST) have been paid in advance for next year.
• Dividends are due but not received on Shares in Datacom, $500.
• Interest is owing on Loan of $150.
• Provide depreciation on shop equipment at 10% p.a. on cost.
• Provide depreciation on vehicles at 20% p.a. by reducing balance method.
PAGE 164
(a) Complete the General Journal Entries required
GENERAL JOURNAL
(c) Prepare the following extracts of Income Statement and Statement of

Financial Position as well as the notes at 31 March 2021.
PAGE 165
Income: Note $
Expenses:
1 Other Income
Current Assets: Notes $
Non-Current Assets:
Notes to the Statement of Financial Position:
PAGE 166
1 Accounts Receivable
2 Property, plant and equipment

For the year ended 31 March 2021 Shop equipment Vehicles Total
Carrying amount 1 April 2020
Carrying amount 31 March 2021
As at 31 March 2021
Cost
PAGE 167
EXERCISE 9.15
Snake Gully Law Firm
Original Adjustm New Original Adjust New
Balance ent +/- Balance Balance ment Balance
+/-
Rent-office 20,000 Mortgage (7% pa) 100,000
Insurance 2,000 Interest received 900
Computers 60,000 Rent received 2,000
Interest on mortgage 6,800 GST payable 2,000
Sales Vehicles 40,000 Accm dep - Comp 24,000
Term Deposit (5% pa) 20,000 Accm dep - SV 11,100
Wages- office staff 50,700
Patent 12,000

• An annual insurance of $644 (inclusive of GST) was paid in 1 October 2021.
• Interest is due but not received on Term Deposit.
• Interest owing on mortgage is still outstanding.
• Wages of $990 are paid to Office staff weekly. There are 52 weeks in a financial
year.
• Depreciation is to be provided on computers at 20% p.a. on cost and on sales
vehicles at 15% p.a. by diminishing value method.
PAGE 168
(a) Complete the General Journal entries required.
GENERAL JOURNAL
PAGE 169
(c) Prepare the Income Statement and Statement of Financial Position (extracts)
below as well as the relevant notes at 31 March 2022.

Income: Note $
Expenses:
1 Other Income
PAGE 170
Current Assets: Note $
Non-Current Assets:
Non-Current Liabilities:
Note to the Statement of Financial Position:

For the year ended 31 March 2022 Computers Sales Total
Vehicles
As at 31 March 2022
Cost
PAGE 171
EXERCISE 9.16
Below is a portion taken from the Trial Balance of Keri Traders as at 31 March 2022:
Keri Traders
$ $
Rent 13,000 Dividends 200
Wages 180,000 Allowance for doubtful debts 500
Advertising 2,000 Accumulated Depreciation:
Interest on Loan 500 Sales Vehicles 18,000
Sales Vehicles 50,000 Office Equipment 9,000
Office Equipment 30,000 Rent Received 3,500
Bad Debts 600 GST payable 850
Accounts Receivable 8,910 Loan (10% p.a. due 2025) 6,000
Shares in the Farmers 20,000
• Write off a credit customer’s account of $460 (including GST) as bad, and adjust
the allowance for doubtful debts to 8% of outstanding accounts receivable.
• A 9-month advertising campaign of $414 (including GST) was paid on 1 October
2021.
• Wages of $7,000 were paid fortnightly. There are 52 weeks in a financial year.
• Dividends of $342 were earned but not yet received for this financial year.
• Rent of $2,070 (including GST) was received on 1 December 2021 for a period of
six months.
• Interest on loan is owing on balance day.
• Sales Vehicles are to be depreciated at 20% per year on diminishing value and
Office Equipment at 10% per year on cost.
PAGE 172
Prepare the Income Statement and Statement of Financial Position (extracts) below
as well as the relevant notes at 31 March 2022.
Keri Traders
Income: Note $
Expenses:
1 Other Income
PAGE 173
Keri Traders
Current Assets: Notes $
Non-Current Assets:
Non-Current Liabilities:
1 Accounts Receivable

For the year ended 31 March 2022
As at 31 March 2022
Cost
EXERCISE 9.17
PAGE 174
On 31 October 2015 the following trial balance (extract) was prepared for Chan
Dragon Enterprises.
Chan Dragon Enterprises

Trial Balance (extract) as at 31 October 2015
Advertising 103,500 Accounts Payable 275,000
Accounts Receivable 320,000 Accumulated Depreciation
-Vehicles 240,000
Bad debts 8,000 Accumulated Depreciation
-Buildings 375,000
Delivery Vehicles (cost) 720,000 Allowance for Doubtful 13,000
Debts
Buildings (cost) 1,320,000 Bank 150,000
GST 50,000 Mortgage (7% p.a. due 900,000
2021)
Interest on Mortgage 50,000 Rent received 336,000
Other Operating Expenses 400,000 Interest received 7,000
Sales Salaries 230,000
Term Deposit (5% p.a. due 150,000
2022)
The following balance day adjustments have not yet been recorded:
(Note: all items include GST where necessary)
 Six monthly advertising of $119,025 (including GST) was paid on the 1st July.
 Interest is owing on mortgage.
 Accounts Receivable of $18,400 (including GST) are to be written off and the
Allowance for Doubtful Debts is to be adjusted to 5% of the outstanding Accounts
Receivable.
 Chan Dragon Enterprises rents some spare factory space to another business at
$27,600 (including GST) per month.
 Depreciation is 15% p.a. diminishing value on Delivery Vehicles and 10% p.a. on
the cost of Buildings.
 Interest is owing on Term Deposit.
PAGE 175
1 Prepare an extract of the Income Statement for the year ended 31 October
2015 and the Note. FULLY CLASSIFY the expenses.

for the year ended 31 October 2015
Income: Note $
Expenses:
1 Other Income
PAGE 176
2 Prepare the following extract of the Balance Sheet as at 31 October 2015.

as at 31 October 2015
Notes $ $
Current Assets
Non-Current Assets
Current Liabilities
Non-Current Liabilities

For the year ended 31 October 2015
As at 31 October 2015
PAGE 177
EXERCISE 9.18
The following information was taken from the accounting records of Samy Traders as
at 31 March 2015:
Samy Traders
$ $
Term deposit (5% pa) 30,000 Accumulated Depreciation – 5,600
Shop Equipment
Shop Equipment 28,000 Accumulated Depreciation – 9,900
Vehicles
Vehicles 66,000 Allowance for Doubtful Debts 820
Accounts Receivable 24,205 Debentures 150,000
Bad Debts 1,600 Interest on Term Deposit 1,350
Interest on Debentures 4,000 Rent received 9,000
Insurance 7,000
GST receivable 100
1. Interest on the Term Deposit has been earned but not received at the year end.
2. Shop Equipment is to be depreciated by 10% p.a. using the straight line method.
3. Vehicles are to be depreciated by 15% p.a. using the diminishing value method.
4. A further $805 of accounts receivable (including GST) is to be written off and the
allowance for doubtful debts is to be adjusted to 4% of outstanding accounts
receivable.
5. An annual insurance of $2,000 (excluding GST) was paid on 1 July 2014.
6. Debentures were issued on 30 November 2014 at a fixed interest rate of 9% p.a. for 5
years. Interest on Debentures is outstanding at balance day.
7. Rent received was from Kin Traders who has rented part of the premises for the past 9
months at $900 per month (excluding GST).
PAGE 178
Required:
a) Prepare the following extract of the Income Statement of Samy Traders for
the 2015 year as well as the relevant notes. You need to classify the
expenses.
Samy Traders
Income: Note $
Expenses:
1. Other Income
PAGE 179
b) Prepare the following extract of the Statement of Financial Position of Samy
Traders for the 2015 year as well as the relevant notes.
Samy Traders
Notes $ $
Current Assets
Non-Current Assets
Current Liabilities


For the year ended 31 March 2015: Shop Equipment Vehicles Total
As at 31 March 2015:
Cost
PAGE 180
EXERCISE 9.19
The following information was taken from the accounting records of Williams Traders
as at 31 March 2019:
Williams Traders
$ $
Equipment 60,000 Accumulated Depreciation – 12,000
Equipment
Sales Vehicles 200,000 Accumulated Depreciation – 38,000
Sales Vehicles
Accounts receivable 40,045 Allowance for Doubtful Debts 546
Bad debts 2,000 GST 250
Rates 3,000 Mortgage (8% p.a.) 70,000
Rent 26,000 Rent received 17,600
Shop wages 20,000 Interest on Term Deposit 390
Interest on Mortgage 5,200
Term Deposit (6% p.a.) 8,000
 Equipment is to be depreciated by 10% p.a. on the straight-line method and sales

vehicles by 10% p.a. on the diminished value method.
 Further accounts receivable of $2,645 are to be written off and the allowance for
doubtful debts is to be adjusted to 2% of outstanding accounts receivable.
 The annual rates of $3,450 (including GST) were paid on 1 June 2018 for the
period ended 31 May 2019.
 Rent expense amounts to $2,300 (including GST) per month. The rent has been
paid up to 30 April 2019.
 Shop wages of $1,000 have still to be paid to an employee who was on leave.
 Interest on the Mortgage is still outstanding.
 Rent of $1,800 (excluding GST) has been received for the next accounting
period.
 Interest is earned on the Term Deposit at 6% p.a. Provide for outstanding
interest.
PAGE 181
Required:
(a) Prepare the following extract of the Income Statement of Williams Traders for
the 2019 year as well as the relevant notes. You need to classify the
expenses.
Williams Traders
Income: Note $
Expenses:
1. Other Income
PAGE 182
(b) Prepare the following extract of the Statement of Financial Position of
Williams Traders for the 2019 year as well as the relevant notes.
Williams Traders
Notes $ $
Current Assets
Non-Current Assets
Current Liabilities


For the year ended 31 March 2019: Equipment Sales Vehicles Total
Cost
PAGE 183
FINANCIAL PERFORMANCE REFLECTED BY
ACCRUAL ACCOUNTING
The following passage is from the NZ Framework. Read it carefully and answer the
questions that follow.
Accrual accounting depicts the effects of transactions and other events and
circumstances on a reporting entity’s economic resources and claims in the periods
in which those effects occur, even if the resulting cash receipts and payments occur
in a different period. This is important because information about a reporting entity’s
economic resources and claims and changes in its economic resources and claims
during a period provides a better basis for assessing the entity’s past and future
performance than information solely about cash receipts and payments during that
period. (External Reporting Board, 2011)
EXERCISE 9.20
(a) What is meant by an entity’s “financial performance”?
(b) What is meant by the following:
Entity’s economic resources:

Entity’s claims:
(c) Why is accrual accounting used by entities?
PAGE 184
At the end of the financial year Furniture Plus Ltd owe some wages to its employees.
The accountant records transactions using accrual accounting.
(d) Explain how accrual accounting is applied when recording the wages owing
on balance day.
At the end of the financial year Furniture Plus Ltd received $2,000 for some furniture
that will be provided in two months’ time. The accountant records transactions using
accrual accounting.
(e) Explain how the amount received from the customer will be recorded using
accrual accounting.
At the end of the financial year Furniture Plus Ltd has paid an insurance premium for
the next financial year.
(f) Name and explain the accounting concept being applied when the
accountant adjusts the amount paid for the insurance.
PAGE 185
At the end of the financial year ABC Bank Ltd has not paid Furniture Plus Ltd interest
on its term deposit.
(g) Name and explain the accounting concept being applied when the
accountant records the amount for interest owing by the bank.
PAGE 186
FULLY CLASSIFIED FINANCIAL STATEMENTS WITH
The following exercises require you to prepare fully classified financial statements
with Balance Day Adjustments.
EXERCISE 9.21
The following information was taken from the accounting records of J Man’s Toys as
at 31 March 2020:
J Man’s Toys
$ $
Cartage Outwards 650 Discount Received 975
Advertising 3,600 Sales 308,000
Cost of Goods Sold 48,850 Mortgage (due 2022) 13,200
Donations 910 Accounts Payable 8,385
Drawings 2,750 Capital (1/04/2019) 107,590
Accumulated Depreciation - 19,200
Electricity 1,885 Shop Fittings
Accumulated Depreciation - 12,000
Inventory (31 March 2020) 5,880 Vehicles
Shares in ABC Ltd 5,000 Allowance for Doubtful debts 1,580
Patent 6,500 Rent 8,000
Sales Commission 884 Interest received 1,500
Repairs - Vehicles 520 Loan (due 31 May 2020) 5,000
Sales Returns 1,300
Repairs - Shop Fittings 1,235
Rent 11,375
Bank 911
Vehicles (cost) 80,000
Bad debts 6,400
GST receivable 1,600
Wages 150,000
Term Deposit (6% pa) 50,000
Interest 1,500
485,430 485,430
PAGE 187
• The term deposit was made on 31 August 2019 for two years with an interest
rate of 6% pa. Interest is paid quarterly.
• Wages of $3,000 were paid weekly. There are 52 weeks in a financial year.
• Three months’ advertising of $690 (inclusive of GST) was paid on 1 February
2020.
• Rent of $598 (inclusive of GST) has been received in advance for the next
accounting period.
• Depreciation is calculated as follows: 10% per annum on cost of shop fittings
and 15% per annum on diminishing value of vehicles.
• Further accounts receivable of $3,680 (including GST) are to be written off as
bad debts and the allowance for doubtful debts is to be adjusted to 5% of
outstanding accounts receivable.
PAGE 188
REQUIRED:
1. Prepare a fully classified Income Statement for the year ended 31 March 2020.
2. Prepare a fully classified Statement of Financial Position as at 31 March 2020.
J Man’s Toys
Income Statement
________________________________________________________
Notes $ $ $
PAGE 189
3 Revenue
4 Other income
PAGE 190
J Man’s Toys
_____________________________________________________
Notes $ $ $
PAGE 191

For the year ended 31 March 2020: Total
Cost
3. Equity
PAGE 192
EXERCISE 9.22
The following information was taken from the accounting records of I Chan’s Food as
at 31 March 2018:
I Chan’s Food
$ $
Accounting Fees 4,630 Accounts Payable 12,000
Accounts Receivable 19,840 Bank 1,400
Freight Outwards 1,000 GST Payable 800
Cost of Goods Sold 231,700 Interest on Term Deposit 900
Bad Debts 4,600 Sales 320,000
Drawings 35,000 Accumulated Depreciation:
Delivery Vans (cost) 40,000 Fixtures and Fittings 9,600
Fixtures and Fittings (Cost) 32,000 Delivery Vans 14,400
Insurance 4,550 Allowance for doubtful debts 790
Interest paid 1,600 Rent Received 4,000
Inventory (31 March 2018) 20,960 Loan 42,050
Petty Cash 100
Rates 1,360
Rent 17,500
Repairs to Delivery Van 800
Goodwill 30,000
Sales Returns 2,000
Term Deposit (5% pa) 20,000
Wages – Shop 18,000
488,590 488,590
• Depreciation is calculated as follows: 10% per annum on cost of Fixtures and
Fittings and 20% per annum on diminishing value of Delivery Vans.
• Further accounts receivable of $1,840 (including GST) are to be written off as
bad debts and the allowance for doubtful debts is to be adjusted to 5% of
outstanding accounts receivable.
• An annual insurance of $690 (inclusive of GST) was paid on 1 July 2017.
• Wages are owing to workers on balance day $900.
• Interest on Term deposit has still to be received.
• Rent of $621 (inclusive of GST) has been received in advance for the next
accounting period.
PAGE 193
REQUIRED:
1. Prepare a fully classified Income Statement for the year ended 31 March 2020.
2. Prepare a fully classified Statement of Financial Position as at 31 March 2020.
I Chan’s Food
Income Statement
____________________________________________________________
Notes $ $ $
PAGE 194
1 Revenue
2 Other income
PAGE 195
I Chan’s Food
________________________________________________________
Notes $ $ $
PAGE 196

For the year ended 31 March 2018: Total
Cost
3. Equity
PAGE 197
GOALS CHECKLIST - ARE YOU ABLE TO DO
THE FOLLOWING?
1 Explain the purpose of accounting, including these concepts:

• Accounting Entity, Monetary Measurement, Going Concern, Period
Reporting, Historical Cost
2 Identify the users and uses of accounting.
3 Explain the advantages and disadvantages of a sole proprietor.
4 Classify assets and liabilities, revenues and expenses.
5 Recognise and define the accounting elements (assets, liabilities,
equity, revenues and expenses).
6 Explain how a financial element meets the definitions in the NZ
Framework.
7 Analyse transactions and their relationship to the accounting equation.
8 Prepare ledger accounts in T-form. Transactions are to include GST
where applicable.
9 Record the general journal entries, ledger account entries and Financial
Statements (extracts or full) for these Balance Day Adjustments:
• Bad Debts and Doubtful Debts
• Depreciation – straight line and diminishing value
• Accrued Expenses – limited to wages and interest
• Accrued Income – limited to interest received and dividends
received
• Prepayments
• Income in Advance
• Accounts Receivable and Accounts Payable
10 Explain the concept of accrual accounting as it relates to financial
performance of an entity.
11 Explain the importance of accrual accounting.
12 Explain how a transaction will be recorded using accrual accounting.
BIBLIOGRAPHY
NZ Institute of Chartered Accountants. (2011). Applicable Financial Reporting Standards
New Zealand Framework 2011. Wellington: NZ Institute of Chartered Accountants.
NZQA. (2010, November). TKI. Retrieved December 3, 2012, from TKI:
http://ncea.tki.org.nz/Resources-for-aligned-standards/Social-
sciences/Accounting/Level-1-Accounting
PAGE 198

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ACCOUNTING

SECTION ONE BASIC BUSINESS PRINCIPLES .................. 4

SECTION TWO ACCOUNTING CONCEPTS ...................... 14

SECTION THREE ASSETS & LIABILITIES ....................... 18

SECTION FOUR INCOME, EXPENSES & PROFIT ............. 26

SECTION SIX EXPANDED EQUATION AND PROCESSING 43

SECTION SEVEN GOODS AND SERVICES TAX ................ 73

SECTION NINE BALANCE DAY ADJUSTMENTS .............. 121

Accounting is communicating financial information so that users can make

USERS OF ACCOUNTING INFORMATION

User Internal External

User Would be interested in

FORMS OF BUSINESS OWNERSHIP

The three most common forms of business ownership are:

 Sole Proprietor, sometimes called Sole Trader (one owner)

In Term II, we will look at Companies.

Click here to watch a video about Users and Forms of Business

Have you checked out the activities on Language Perfect?

The NZ Framework includes definitions for the financial elements as follows:

LIABILITIES 负债 E.g:Loan,Mortgage (home loan),Hire Purchase,

(External Reporting Board, 2011)

EQUITY = ASSETS MINUS LIABILITIES

Classify the following as Asset, Liability or Equity (A, L, Eq).

Cash at Bank Accounts Receivable

Make a list of assets and liabilities that a restaurant may have.

Assets and Liabilities of a Restaurant:

The Accounting Equation can be written in two ways:

Assets = Liabilities + Equity (Capital Contribution)

THE RELATIONSHIP BETWEEN THE STATEMENT

Motts News Agency

Cash at Bank 1,000 Accounts Payable 1,500

Assets = Liabilities + Equity

THE STATEMENT OF FINANCIAL POSITION

The Accounting Equation is also presented in an accounting statement, called the

Vertical Form is the most accepted and professional presentation.

The Statement of Financial Position (Balance Sheet) in this form is proving

Bank 1,500 Accounts Payable 5,000

Complete the following table.

Assets = Liabilities + Equity

Land and buildings $50,000 Equipment $30,000

(a) Calculate the Equity. Show all your workings.

(b) Prepare a Statement of Financial Position (Balance Sheet) (remember –

Have you checked out the activities on Language Perfect?

Name (1) MONETARY MEASUREMENT

(Meaning) Transactions are measured in the common monetary unit of

Name (2) THE ACCOUNTING ENTITY CONCEPT

The Accounting Entity Concept states:

(Meaning) The financial/economic affairs of the business are separate and

Name (3) THE PERIOD REPORTING CONCEPT

The Period Reporting Concept states:

ITEM B/P/BP ITEM B/P/BP

Betty Boris is a self-employed machinist. She comes to you for assistance in

Betty Boris Machinist Services

The Historical Cost Concept states:

Name (5) THE CONCEPT OF GOING CONCERN

Have you checked out the activities on Language Perfect?

CLASSIFYING ASSETS AND LIABILITIES

The first division is into Current Assets and Non-Current Assets.

Property, Plant and Equipment

Examples: Examples: Examples:

a. Accounts receivable l. Goodwill

Match with these Terms:

An accountant has to be able to identify whether a particular item in a transaction is