Professional Documents
Culture Documents
1
LEARNING CONTENTS
The
Measurement
The recording
The
communication
3
Accounting process
Accounting
Recording reports
Transactions Quantification
classification Analysis &
in $ terms
summarisation interpretation
Learning Objectives
Defining the source document for recording business
1 transactions
Source document:
A source document is the original record
containing the details to substantiate a transaction
entered in an accounting system.
A source document describes all the basic facts of
the transaction, such as the amount of the
transaction, to whom the transaction was made,
the purpose of the transaction, and the transaction
date.
11
Credit sale Credit purchased
Receive sales Sales order Send purchase
Order from (receive Order to supplier
customer from Purchase
customer) order
• Quotation
• Purchase Order
• Sales Order
• Delivery note
• Goods received note
• Credit Note
• Debit Note
• Invoice…
14
2 Some types of source documents
25
Identifying basic information in source
LEARNING
OBJECTIVE 3 documents
Transfer
Completion
Source
Documents process
and flowchat
Storage
Inspection
Preparation
27
Responsibility Function parts
Specific work Payer Payment Chief Cashier Director
accountant accountant
1.Application for 1
payment
2. Preparing Cash 2
receipt invoice
3 Sign in Cash 3a 3b
receipt invoice
4. Receive cash 4
5. Recording in 5
accounting book
6.Storage 6
28
Responsibility Fuction parts
1. Application for 1
payment
2. Preparing Cash 2
payment invoice
3 Sign in Cash 3a 3b
payment invoice
4. Pay cash 5
5. Recording in 4
accounting book
6. Storage 6
29
3.2 The Measurement
30
A. Which elements are measured?
1. Asset
2. Liability
3. Equity
4. Income
5. Expense
31
B. Prices used for measurement?
(Or measurement bases)
1. Historical cost
2. Current cost
3. Market value (Selling price)
4. Relizable value
5. Present value
6. Fair value
32
Historical cost
34
Market value
Market value refers to the current or most recently-
quoted price for a market-traded security. It can also
refer to the most probable price an asset, like a house,
would fetch on the open market
The market value of an asset is determined by
fluctuations in supply and demand. It should be noted
that market value represents what someone is willing
to pay for an asset -- not the value it is offered for or
intrinsically worth
35
Realizable value
Realizable Value = Selling Price – Costs to sales
36
Present value
40
D. Measurement of inventory
41
D. Measurement of inventory
42
D. Measurement of inventory
43
D. Measurement of inventory
Periodic system:
1. Purchases of merchandise are debited to Purchases.
2. Ending Inventory determined by physical count.
3. Calculation of Cost of Goods Sold:
Beginning inventory $ 100,000
Purchases, net + 800,000
Goods available for sale 900,000
Ending inventory - 125,000
Cost of goods sold $ 775,000
45
D. Measurement of inventory
47
D. Measurement of inventory
48
E. Measurement of Fixed Asset
51
3.4 The Recording
Learning Contents
Learning Objectives
1 Account and form of account
Learning Objectives
Explain the accrual basis of accounting and the
1 reasons for adjusting entries.
56
How to open accounts
Assets
BS Account: real
Liabilities
(permanent) accounts
Relationship to Equity
FS
I/CS Account: Income
nominal (temporary)
accounts Expenses
Control accounts
Accounts Detailed
information level
Subsidiary accounts
Real accounts
Nominal accounts
Structure of accounts
General Structure
59
General Structure of accounts
An account can be
illustrated in a T-
account form.
Three parts:
(1) A title/name
(2) A left or debit side
(3) A right or credit side.
60
General Structure of accounts
Assets
Debit / Dr. Credit / Cr.
Normal Balance
Chapter
3-23
63
Structure of Liability account
Liabilities
Debit / Dr. Credit / Cr.
Normal Balance
Chapter
3-24
64
Structure of Owner’s Equity account
Owner’s Equity
Debit / Dr. Credit / Cr.
Normal Balance
Chapter
3-25
65
Structure of Expense account
Expense
Debit / Dr. Credit / Cr.
Chapter
3-27
66
Structure of Income account
Revenue
Debit / Dr. Credit / Cr.
Chapter
3-26
67
Structure of Income summary account
68
Structure of some special accounts
Deferred revenue
Prepaid expense
69
Structure: opposite with asset account
70
Structure: as equity account structure
71
Structure: as asset account structure
Deferred revenue
Beginning balance: Unallocated
deferred revenue at beginning of
accounting period
Ending balance:Unallocated
deferred revenue at end of
accounting period
73
Structure: as asset account structure
Prepaid expense
74
Structure: as equity account structure
Debit
Credit
Summary of Debit/Credit Rules
Expanded
Equation
Debit/Credit
Effects
Question
Debits:
Question
Accounts that normally have debit balances are:
d. assets
2 Recording financial transaction in accounts
80
2 Recordingfinancial
Recording financialtransaction
transactionininaccounts
accounts
81
2 Recording financial transaction in accounts
The JOURNAL
Book of original entry.
Transactions recorded in chronological order.
Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the
debit and credit amounts can be easily compared.
85
JOURNALIZING - Entering transaction data in the journal.
Name:...........
GENERAL JOURNAL
Year:..................
(Unit:..........)
Voucher Amount
Explanation Ref Account
No Date Deb Cre
v Cash 20.000
Opened a bank account
1 in the name of Hair It Is Owner’’s
20.000
and deposited cash capital
Total 86
24.800 24.800
Indicate how a journal is
3 used in the recording process.
SIMPLE AND COMPOUND ENTRIES
Illustration: On July 1, Butler Company purchases a delivery truck
costing $14,000. It pays $8,000 cash now and agrees to pay the remaining
$6,000 on account.
Voucher Amount
Explanation Ref Account
No Date Deb Cre
Fixed asset 14.000
1/7/N Purchases a delivery truck
Cash 8.000
Account payable 6.000
LO 2
Total
DO IT!
Kate Browne engaged in the following activities in establishing
her salon, Hair It Is:
LO 2
DO IT!
Prepare the entries to record the transactions.
The Ledger
General Ledger contains all the asset, liability, and owner’s
equity accounts.
Illustration 2-15
LO 3
The Ledger
CASH NO.111
Source
Amount
Date doccument Explaination Ref.
N D Debit Credit
Sum
Ending balance
LO 3
Ledger
POSTING
Transferring
journal entries
to the ledger
accounts.
Posting
Question
Posting:
LO 3
DO IT! Posting
LO 3
Draft financial information shown below has been prepared for Z,
a joint stock company, as at 01/01/N (unit: million VND)
95
1. Purchase a van (using for delivery of goods), which is payable to
supplier X: 420
2. Pay salary to employees (cash on hand): 50
3. Receipts from customer A for due amount of previous period
(cash at bank): 50
4. Owner contributes additional capital in cash (cash on hand): 500
5. Retained earnings used to increase capital: 200
6. Advances to employees for business trip (cash on hand): 15
7. Retained earnings is allocated to Bonus and Welfare Fund: 10
8. Merchandise is purchased and received, paid by cash at bank: 50
9. Purchase tangible fixed assets financed by long-term loan: 300
10. Payment to settle short-term loan(cash at bank):100;payment to
State Treasury: 30
Required: 1. Prepare the General Journal
2. Prepare the General leger of cash on hand, payable to employees,
retain earnings. 96
3.4.2 Adjusting The Accounts
Learning Objectives
Explain the accrual basis of accounting and the
1 reasons for adjusting entries.
LO 1
Explain the accrual basis of accounting
1
and the reasons for adjusting entries.
LO 1
Explain the accrual basis of accounting
1
and the reasons for adjusting entries.
LO 1
The Need for Adjusting Entries
Question
Adjusting entries are made to ensure that:
a. expenses are recognized in the period in which
they are incurred.
b. revenues are recorded in the period in which
services are performed.
c. balance sheet and income statement accounts
have correct balances at the end of an accounting
period.
d. all of the above.
LO 1
Types of Adjusting Entries
Illustration 3-2
Categories of adjusting entries
Deferrals Accruals
LO 1
DO IT! 1 Timing Concepts
A list of concepts is provided in the left column below, with a description of the
concept in the right column below. There are more descriptions provided than
concepts. Match the description of the concept to the concept.
f Accrual-basis accounting.
1. ___ (a) Monthly and quarterly time periods.
(b) Efforts (expenses) should be matched
e Calendar year.
2. ___
with results (revenues).
c Time period assumption.
3. ___ (c) Accountants divide the economic life of
b Expense recognition
4. ___ a business into artificial time periods.
principle. (d) Companies record revenues when they
receive cash and record expenses
when they pay out cash.
(e) An accounting time period that starts on
January 1 and ends on December 31.
(f) Companies record transactions in the
period in which the events occur.
LO 1
2 Prepare adjusting entries for deferrals.
Prepaid expenses
Unearned revenues
LO 2
Prepaid Expenses
LO 2
Prepaid Expenses
Adjusting entry:
► Increase (debit) to an expense account and
Illustration 3-4
LO 2
Depreciation
LO 2
Depreciation
Oct. 31
Depreciation expense 40
Accumulated depreciation 40
LO 2
Illustration 3-7
LO 2
Depreciation
STATEMENT PRESENTATION
Accumulated Depreciation is a contra asset account
(credit).
Offsets related asset account on the balance sheet.
Book value is the difference between the cost of any
depreciable asset and its accumulated depreciation.
Illustration 3-8
LO 2
Prepaid Expenses
LO 2
Unearned Revenues
LO 2
Unearned Revenues
LO 2
Unearned Revenues
Illustration 3-11
LO 2
Unearned Revenues
LO 2
LEARNING
OBJECTIVE
3 Prepare adjusting entries for accruals.
LO 3
Accrued Revenues
LO 3
Accrued Revenues
Adjusting entry:
► Increases (debits) an asset account and
► Increases (credits) a revenue account.
Illustration 3-13
LO 3
Accrued Revenues
Oct. 31
LO 3
Accrued Revenues
LO 3
Accrued Expenses
LO 3
Accrued Expenses
Adjusting entry:
► Increase (debit) an expense account and
► Increase (credit) a liability account.
Illustration 3-16
LO 3
Accrued Expenses
ACCRUED INTEREST
Illustration: Pioneer Advertising signed a three-month note
payable in the amount of $5,000 on October 1. The note requires
Pioneer to pay interest at an annual rate of 12%.
Illustration 3-17
LO 3
Accrued Expenses
Illustration 3-18
LO 3
Accrued Expenses
ACCRUED INTEREST
Illustration: Pioneer Advertising paid salaries and wages on
October 26; the next payment of salaries will not occur until
November 9. The employees receive total salaries of $2,000 for a
five-day work week, or $400 per day.
Illustration 3-19
LO 3
Accrued Expenses
Illustration 3-20
LO 3
Accrued Expenses
LO 3
Summary of Basic Relationships
Illustration 3-22
LO 3
DO IT! 3 Adjusting Entries for Accruals
LO 3
DO IT! 3 Adjusting Entries for Accruals
to owner’s capital.
LO 2
Preparing Closing Entries
Illustration 4-9
Diagram of closing
process—proprietorship
Owner’s Capital is a
permanent account. All
other accounts are
temporary accounts.
LO 2
Preparing Closing Entries
CLOSING
ENTRIES
ILLUSTRATED
Posting
Closing
Entries
2 Correction of errors
Types of errors in Accounting:
Transposition errors: When two digits in an amount are
accidentally recorded the wrong way round.
Errors of omission: Failing to record a transaction at all, or making
a debit or credit entry, but not the corresponding double entry
Errors of principle: Making a double entry in the belief that the
transaction is being entered in the correct accounts, but
subsequently finding out that the accounting entry breaks the 'rules'
of an accounting principle or concept
Errors of Comission: Where the bookkeeper makes a mistake in
carrying out his or her task of recording transactions in the accounts.
Two examples are: - putting a debit/credit entry in the wrong
account; errors of casting (adding up)
Compesating errors: Errors which are, coincidentally, equal and
opposite to one another 139
2
Correction of errors
Errors which have not caused an imbalance are corrected via
journals
Errors which have broken the rules of double entry bookkeeping
and result in the trial balance failing to balance can be corrected
by:
1. Setting up a suspense account
2. Clearing it with correcting journal
A suspense account may also be deliberately set up when a book
keeper doesnot know where to put one side of an entry
Suspense accounts are always temporary and should never appear
in FS. These should not be prepared until the errors have been
corrected and the suspense account has been cleared.
Some corrections of errors will result in adjustment to a draft
profit calculated while there were still errors in the account.
140
2 Correction of errors
Journal entries:
1. Work out first what the original entry was
2. Then what the original entry should have been
3. And finally what the correcting entry should be
141
2 Correction of errors
Suspense account: An account showing a balance equal
to the difference in a trial balance.
Using a suspense account when the trial balance does
not balance:
+ Open a suspense account with the amount of the
imbalance.
+ Use a journal entry to clear the suspense account and
correct the error.
Using a suspense account to complete the double entry
When bookkeeper does not know where to post one side
of a transaction.
142
3 Prepare a trial balance.
Trial balance
Total
143
3 Prepare a trial balance.
Trial balance: is a list of nominal ledger balance
shown in debit and credit columns, as a method of
testing the accuracy of double entry bookkeeping.
The trial balance is not part of the double entry
system.
The balance at the end of a period on all the nominal
ledgers are listed on a trial balance, debit balances
appear in the debit column and credit balances in the
credit column. When added up, the two columns
should be equal.
144
3 Prepare a trial balance.
Learning Contents
147
2 Statement of Profit or Loss (Income statement)
Single-Step Format
The single-step statement Income Statement (in thousands)
Revenues:
consists of just two Sales $ 285,000
groupings: Interest revenue 17,000
Total revenue 302,000
Expenses:
Revenues Single- Cost of goods sold 149,000
Selling expense 10,000
Expenses Step
Administrative expense 43,000
149
Statement of Profit or Loss (Income statement)
Multiple-Step Format
Income Statement (in thousands)
The presentation Sales $ 285,000
divides information Cost of goods sold 149,000
Gross profit 136,000
into major sections. Operating expenses:
Selling expenses 10,000
1. Operating Administrative expenses 43,000
Total operating expense 53,000
Section
Income from operations 83,000
2. Nonoperating Other revenue (expense):
Section Interest revenue 17,000
Interest expense (21,000)
Total other (4,000)
Income before taxes 79,000
3. Income tax Income tax expense 24,000
Net income $ 55,000
150
Statement of Profit or Loss (Income statement)
Item Code Notes Current year Previous year
Revenue from sales of merchandises and
services rendered
Revenue deductions
Net revenue from sales of merchandises
and services rendered
Costs of goods sold
Gross profit from sales of merchandises
and services rendered
Revenue from financing activity
Financial expenses
Selling expenses
General administration expenses
Net profit from operating activity
Other income
Other expenses
Other profit (40 = 31 – 32)
Total accounting profit before tax
Current corporate income tax expense
151
3 Statement of Financial position (Balance sheet)
Balance Sheet -
Format
Report Form
LO 3
154
3 Statement of Financial position(Balance sheet)
155
156