Package 1 (LT 1 - 6) Includes Tutorials

Business Accounting
Lecture 1 Introduction to Accounting

(Student’s copy)
(For week beginning 16 April 2018)
Learning Objectives
At the end of the lecture you should be able to:
• state the nature and purpose of accounting.
• identify the users of financial information and discuss how accounting serves their needs.
• describe the nature of business and types of ownership.
• explain accounting assumptions and principles underlying the preparation of financial reports.
Basic Text Warren, Reeve, Duchac, Fung, Cheong, Fadhlina, Ooi – ‘Accounting: An Asian
edition’, third edition, Singapore: Cengage Learning, Chapter 1 p. 8 - 12
Reference Kirkwood, Ryan, Falt, Stanley – ‘Accounting: An Introductory Framework’, second

edition, Pearson Longman, Chapter 12 p. 482 - 483
1. What is Accounting?
Definition
Accounting is that discipline which measures and records financial and other information
about an entity, and reports and interprets that information to interested parties to enable them
to make appropriate decisions.
Is accounting the same as

bookkeeping?
Bookkeeping is usually associated with the physical recording of the monetary transactions
of a business and tends to be mechanical – and at times repetitive. Accounting, on the other
hand, has a much wider interpretation (see definition above)
B A: Accounting
A
B: Bookkeeping
1
Business Accounting
2. Main Purposes of Accounting
Individuals need some simple form of accounting to deal with their personal financial matters.
Business firms and other organisations need accounting systems to provide information (via
financial reports / statements) on profitability and financial position of the firms to various
interested parties.
3. Accounting Assumptions and Principles

The whole process of accounting is guided by generally accepted rules and they may be called
accounting concepts. The importance of the accounting concepts lies in providing a uniform
understanding and approach in the practice of accounting all over the world.
Please refer to Warren p. 8 – 12 for a more detailed explanation of the following concepts:
• _________________________________________
The business is an entity or body separate from the owners.
The transactions are recorded from the viewpoint of the business and the owners are
treated as outsiders. The accounting process is concerned with the activities of the
business organisations and not the activities of the owners.
• _________________________________________
It assumes that all transactions affecting the business are recorded in the common
monetary unit in use, i.e. in dollars and cents.
Any transaction of the business that cannot be expressed in money terms will be excluded
from the accounting records.
• _________________________________________
Assumes that business transactions are recorded in terms of their cost at the time the
transaction occurred.
• _________________________________________
This concept is closely related to the concept of historical cost.
It is assumed that the business will continue to operate for a long time and will not be
selling its assets in the near future. As such, we report assets at their historical costs.
Where a firm is going out of business or into liquidation (i.e. continuity assumption is no
longer applicable), the firm will typically report the assets at their liquidating values
(selling prices) instead.
• _________________________________________
It assumes that the indefinite life of a business is divided into arbitrary time periods. This
period is generally one year for reporting to external parties, but can be varied for internal
reporting.
• _________________________________________
Generally, the principle means the adoption of cautious accounting practices. When
determining the periodic profit for a business, accountants traditionally tend towards
caution with profits being recognised only when they have actually been earned. On the
other hand, provision must be made to account for all probable losses.
2
Business Accounting
• _________________________________________
The principle requires that the accounting methods adopted should remain unchanged from
period to period so that accounting reports for consecutive periods have greater
comparability.
• _________________________________________
All information and explanation necessary for interpretation of reports and statements
should be conveyed to users.
• _________________________________________
The principle means that the treatment of an item depends on its importance and
accounting significance. It depends on the judgement of the accountant and the size of the
business. For example, cents are ignored or rounded to the nearest dollar, and even dollars
may be rounded to the nearest ten or hundred dollars in published accounting reports.
• ____________________________ (Lecture 6 – Preparation of Financial Statements)

Matching of expenses with the revenue generated during the period by those expenses.
• _________________________________________
Recognises revenue and expenses in the same period when they are earned or incurred, not
when cash has been received or paid for that transaction.
Lecture Exercise Do you agree? State the relevant accounting concepts.

1. Rich Company decides to change his accounting method (e.g. using another method to
value his inventories) this year because the change will result in showing higher profits.
____________________________________________
2. Alan Cafeteria bought a refrigerator for $800 from a neighbourhood shop. The same
refrigerator would cost $960 at most departmental stores. Alan decided to put in his
accounting records, the cost at $800.
____________________________________________
3. A fire destroyed the warehouse of a shoe manufacturer last week. The company has to report
its financial position at the end of this month. The manager does not want to disclose the
incident in the financial reports because he fears that it will reflect badly on the financial status
of the company.
____________________________________________
4. Dr Fickle is a general practitioner in private practice. Over the weekend, he invited some of his
friends for BBQ at his new house. He intends to show the full costs of the BBQ in the
accounting records of his medical practice because he claims that it is perfectly all right since
it is against his own profits.
____________________________________________
3
Business Accounting
5. In submitting the current year’s sales figures to management for budgeting purpose for the
coming year, the accountant decides to report it as $1,200,500 instead of the actual figure of
$1,200,510.45.
____________________________________________
6. If a hotel is suing a guest for setting its room on fire and its lawyer indicates the case will be
won (by the hotel) and estimates the amount of settlement, the amount is not recorded.
On the other hand, if the hotel is a defendant in a lawsuit and its lawyer indicates the hotel will
lose the lawsuit and most likely will pay a stated amount, this “expense” is recognised and
recorded immediately.
____________________________________________
7. Simple Co. Pte Ltd reports the revenues earned and expenses incurred on a monthly basis for
internal management review. It also prepares an audited annual income statement that covers
the 12 month-period ended 31 December for submission to the Accounting and Corporate
Regulatory Authority.
____________________________________________
8. A business excludes such relevant information as the prime location of its retail outlets, quality
of service, morale of employees and health of owner from the accounting records as these
could not be quantified in terms of money.
____________________________________________
Please refer to Appendix 1 for full answers. (Appendix 1 will be released through LMS on last day of
week to assist in preparation of tutorial)
Since accounting is all about providing financial information to

users, what are some of the qualitative characteristics inherent in
financial reports in order that they be useful to people?
• Relevance
• Reliability
• Materiality
• Comparability
• Understandability
(refer to KW p. 482 – 483)
4
Business Accounting
4. Users of Financial Information

These people need information for decision-making purposes:
• _____________________________
• Investing decisions
• _____________________________
• Planning, co-ordinating and controlling
• _____________________________
• Credit, lending decisions
• _____________________________
• Tax, economic decisions
• _____________________________
• Concerned with performance and financial stability of organisation
• _____________________________
• Concerned with continued existence of firm (honouring of warranties)
5. The Nature of Business & Types of Ownership
5.1 Nature of the business
• _____________________________
- A manufacturing firm converts raw materials into products to be sold to trading firms.
- E.g.: Computer hardware manufacturer, household products manufacturer
• _____________________________
- A wholesaler buys in very large quantities from the manufacturer and distributes in
smaller quantities to the retailer.
- E.g.: Sole distributor of printers, electronic products
- A retailer buys goods from the wholesaler and sells goods to the final consumers.
- E.g.: Departmental store, provision shop, minimart
• _____________________________
- A service business provides services to the public for which a fee is charged.
- E.g.: Solicitor, accounting firm, transport company, airline
5
Business Accounting
5.2 The types of ownership
• Sole proprietorships
• Partnerships
• Corporation or companies
• Statutory bodies
• Co-operatives
In BA, we will be covering sole proprietorships and companies.
~ End of Lecture 1 ~
6
Business Accounting Temasek Polytechnic
Tutorial 1 Introduction to Accounting

(Student’s copy)
(For week beginning 23 Apr 2018)
IMPORTANT NOTE
Do your homework before your lesson – attempt all questions
Please bring along Warren to tutorial class this week
Warren: Textbook by Warren, Reeve, Duchac, Fung, Cheong, Fadhlina, Ooi – ‘Accounting: An
Asian edition’, third edition.
1. Accounting, unlike bookkeeping, involves more than counting and recording of financial
data. Do you agree? Explain.
2. What are accounting concepts and why are they important?
3.
(a) The accounting entity assumption means:
i the business is the same body as the owner
ii the books are kept from the owner’s point of view
iii the business is a separate body from the owner
iv the law regards the business as responsible for its own debts
(b) The business pays the owner’s personal insurance policy. The amount of $500 is not
regarded as a business item. Which of the following principles is being applied?
i monetary assumption
ii accounting entity assumption
iii materiality
iv reliability
(c) The business anticipates that it will make a large gain in two months’ time. This is not
reported in the financial statements at this time. Which of the following principles is being
applied?
i continuity assumption
ii materiality
iii principle of conservatism
iv understandability
(d) A very large business has a small amount of stationery on hand at the end of the financial
year. It does not make an effort to count this up and value it. Which of the following
principles is being applied?
i historical cost assumption
ii accounting entity assumption
iii reliability characteristic
iv materiality characteristic
1
(e) A profit or loss figure is calculated every year for reporting to the interested parties of the
organisation. Which of the following principles is being applied?
i comparability characteristic
ii accounting period assumption
iii monetary assumption
iv relevance characteristic
4. (a) Briefly explain the accounting period concept.
(b) Complete the following table by filling in the beginning or the end of the given
accounting period.
The firm prepares financial Beginning of End of accounting

statement on the following accounting period period
basis … :
(1) Monthly 1 January 2018
(2) Quarterly 30 June 2018
(3) Half-yearly 1 July 2017
(4) Yearly 1 October 2017
5. For each of the following situations,

• state whether you agree or disagree with the accounting treatment and
• justify your answer with reasons (using the relevant accounting concepts);
• if you disagree, explain what you think should be the correct treatment.
1. The company’s machinery purchased several years ago for $10,000 is now worth $18,000.
The directors decided to reflect the Machinery account at the original value of $10,000.
2. A general practitioner mixes her personal accounting records with those of the medical
practice.
3. After starting the business in February 2009, a coal-mining business prepares no

accounting reports thereafter. The owner is waiting until the mine is exhausted to
determine the success or failure of the business.
4. A business enjoys good reputation and a regular clientele. Besides, it has a highly efficient
and dynamic manager. Nevertheless, all these ‘assets’ are excluded from the financial
statements.
5. A printing shop changes accounting methods every year in order to report the maximum
amount of net profit possible under accounting standards.
6. Competition has taken away much of the business of a small airline. The airline is
unwilling to report its plans to sell half its fleet of aircraft.
7. A construction firm signs a two-year contract to build an expressway. The firm

immediately records the full contract price as revenue.
2
Additional Questions for Self-Practice
6. Discuss the needs of the following users of financial reports:

(a) Owners
(b) Management
(c) Creditors
(d) Government
(e) Employees
(f) Trade Unions
(g) Customers
(h) Bankers
7. Warren, Exercise 1-2, p. 28. [Exclude Section A - 1 & 12 and Section B - g & i]
3
Tutorial 1 Introduction to Accounting

(Student’s copy)
Classwork
Warren, Problem 1-1A, p. 33 [do only (d), (f), (g) and (h)]
~ End of Tutorial 1 ~
4
Lecture 2 Application of Accounting Equation

(Student’s copy)
Learning Objectives
At the end of the lecture, you should be able to:
• define the terms: assets, liabilities, owner’s equity, revenue and expense.
• explain how the accounting equation is derived.
• prepare a simple balance sheet.
• determine the effects of transactions on the accounting equation / balance sheet.
• determine the effect of revenue and expense on owner’s equity.
edition’, third edition, Singapore: Cengage Learning, Chapter 1 p. 12 - 19
Reference Kirkwood, Ryan, Falt, Stanley – ‘Accounting: An Introductory Framework’, second

edition, Pearson Longman, Chapter 2 p. 18 – 37
1. The Accounting Equation
External Parties Owner

RESOURCES SOURCES
ASSETS = LIABILITIES + OWNER’S EQUITY
For a business to operate, it needs resources – known as assets in accounting. Such resources have to
be supplied by someone – the owner himself (owner’s equity) and / or some external parties
(liabilities).
Assets - items of value owned by a business.

E.g.: cash at bank, furniture, inventories / stock of goods, debtors
Liabilities - amounts owed by a business to external parties.

E.g.: creditors, bank overdraft, loan from bank
Owner’s equity - amount of the owner’s interest or investment in the business.
1
Exercise: Identifying assets ( A ), liabilities ( L ) and owner’s equity ( OE )

Warren Exercise 1-7, p. 30 (modified)
Classify the following items as assets ( A ), liabilities ( L ) or owner’s equity ( OE ).
a Office equipment A g Accounts receivable A

b Supplies A h Loan from bank L
c Accounts payable L i Building A
d Land A j Motor vehicle A
e Interest payable L k Capital OE
f Cash at bank A l Loan to A A
• accounts payable - amounts owing by business to suppliers of goods or services

• accounts receivable - amounts owing by credit customers to business
• interest payable - interest owing by business to bank for loan
The relationship between A, L and OE of a business at a certain date is always an equality.
Exercise: Application of the accounting equation: A = L + OE
KW 2.8, p. 22
If M Rode had the following assets and liabilities, what is the investment in the business?
$
Cash in hand 1,000
Loan from bank 4,000
Accounts payable 500
Accounts receivable 8,000
Inventories 2,000
Furniture 3,500
Solution:
Assets $ Liabilities $
Cash in hand 1,000 Loan from bank 4,000
Accounts receivable 8,000 Accounts payable 500
Inventories 2,000
Furniture 3,500
14,500 4,500
Using A = L + OE
OE = A – L
= $(14,500 – 4,500)
= $10,000
2
2. The Balance Sheet

 detailed expression of the accounting equation
 list of all the assets, liabilities and owner’s equity as at a particular point in time
 financial statement showing the financial position of a firm as at a particular point in time
OE = A - L
M Rode
Balance Sheet as at … … (at a particular date)
Owner’s Equity OE
Capital, Rode 10,000
=
Represented by:
Assets A
Cash in hand 1,000
Inventories 2,000
Furniture 3,500 14,500 -
Less: Liabilities L
Accounts payable 500 4,500
Net Assets ( A - L ) 10,000
Note: The narrative form in Warren p. 18 follows A - L = OE.

For the purpose of our course, we will begin with the OE section, followed by the net assets
section (i.e. A - L)
3. Effects of Transactions on Accounting Equation / Balance Sheet

Every transaction will affect _________________________ in the accounting equation – also known
as the dual effect of transactions.
Just like every coin

E.g. Owner invested cash to start a business. From the firm’s point of view,
there is cash flowing into business. At the same time, there is recognition of
the capital contributed by owner.
has 2 sides!
3
Example: Warren, p. 13 - 14
Chris Chee begins a business that will be known as Internet Solutions.
20X1
(a) Nov 1 Chris Chee deposits $25,000 in a bank account in the name of Internet Solutions.
(b) Nov 2 Internet Solutions paid $20,000 cash for land.
(c) Nov 3 Internet Solutions bought supplies for $1,350 and agreeing to pay the supplier in the
near future.
Analysis of effects of transactions on accounting equation:
A = L + OE
20X1 Cash at bank + Land + Supplies Accounts payable + Capital, Chris Chee
(a) Nov 1 + $25,000 + $25,000
(b) Nov 2 - $20,000 + $20,000
(c) Nov 3 + $1,350 + $1,350
Bal --------------- ------------ ---------- ----------- -------------
$5,000 $20,000 $1,350 $1,350 $25,000
--------------- ------------ ----------- ----------- ------------
So far, we’ve examined transactions involving only assets, liabilities and owner’s equity. Herein,
we’ll discover the other 2 basic elements in accounting.
What is the effect of the following transactions on the accounting equation?

 Performed services and received fees revenue $1,000 cash
 Paid wages $500
Cash + $1,000 Profit + $1,000 (Fees revenue)

Cash - $ 500 Profit - $ 500 (Wage expense)
4
4. Revenue and Expense
NOTE:
______________________
 inflow of resources to the business resulting from Both revenue and
 the sale of inventories / services performed expense affect profit,
 general operations of business which belong to owner
 increases profits and hence OE (OE).
 e.g.: sales, service fees revenue, and interest revenue
Hence, R and E are
subsumed under OE in
________________________ the accounting
 outflow of resources from the business resulting from equation.
 the purchase of inventories / services acquired
 general operations of business
 reduces profits and hence OE
 e.g.: rent expense, advertising, postage, salaries

(OE {at beginning} + Profit - Drawings)
R-E
where OE is made up of :
 owner’s investment / interest at the beginning of the period
 profits generated ( revenue - expense ) during the period
and is reduced by :
 any withdrawals made by owner ( ‘drawings’ → negative OE ) during the period
5
Example: Warren, p. 13 – 14 (cont’d)
20X1
d Internet Solutions provided services to customers, earning fees of $7,500 and
receiving the amount in cash.
e Expenses paid during the month amounted to $3,650.
f Internet Solutions pays $950 to creditors.
h Owner, Chris Chee withdraws $2,000 in cash.
A =L +OE
20X1 Cash at + Land + Supplies Accounts Capital, + Profit - Drawings

Bank Payable Chris (Revenue –
Chee Expense)
Bal $5,000 $20,000 $1,350 $1,350 $25,000
d +$7,500 $7,500
(Fees Revenue)
(OE  as revenue )
e -$3,650 -$3,650
(Expenses)
(OE  as expense )
f -$950 -$950
h -$2,000 -$2,000
(OE  as
drawings
)
-------- -------- -------- -------- -------- -------- --------
Bal $5,900 $20,000 $1,350 $400 $25,000 $3,850 -$2,000
-------- -------- -------- -------- -------- -------- --------
6
Internet Solutions
Balance Sheet
as at 30 November 20X1
Owner’s Equity $ $
Capital, Chris Chee 25,000
Add: Net Profit 3,850
Less: Drawings 2,000
26,850
Represented by:
Assets
Cash at bank 5,0900
Land 20,000
Supplies 1,350 27,250
Less: Liabilities
Accounts Payable 400
Net Assets 26,850
7
Tutorial 2 Application of Accounting Equation

(Student’s copy)
IMPORTANT NOTE
Please remember to bring along Warren to tutorial class this week.
The Accounting Equation and its Basic Elements
1. State the accounting equation and identify the basic elements.
2. Warren, Exercise 1-4, p. 29
3. Warren, Exercise 1-5 p. 29
4. For each of the following items which relate to the business of Woolly Cotton, retailer
of children’s wear:
i. Select a short name which you consider suitable and unambiguous to describe
each item.
ii. Classify the item as an asset (A), liability (L) or owner’s equity (OE).
Part (a) has been done for you as an illustration.

(i) (ii)
a. Cash in the business bank account. Cash at Bank A
b. Tables and racks used to display goods for sale.
c. The amount which C Wool (the owner) paid in to

commence the business.
d. Amounts owing by the firm to manufacturers who have
supplied goods.
e. Amounts owing by customers who have purchased
goods.
f. A loan to the firm by B Nylon (a friend)
g. Goods which are held for resale.
h. Change kept in the cash registers.
i. The amount by which, under arrangement with the bank,

the firm has overdrawn its account with the bank.
j. Van used for delivering goods.
k. The amount that C Wool has withdrawn from the

business in anticipation of profits.
1
Balance sheet
5. Warren, Problem 1-4B, p. 38 (ignore the instructions in the textbook)
(a) Compute the net profit for the year ended 30 April 20X1.
(b) Prepare the balance sheet as at 30 April 20X1 using the narrative form (lecture
notes p. 3). Please begin with OE section followed by A – L.
Effects of transactions on accounting equation / balance sheet
Use template on the next page for analysis of effects of transactions.
In addition, prepare the balance sheet as at 31 March 20X1 using the narrative form
(lecture notes p. 3). Please begin with OE section followed by A – L.
2
6. Analysis of effects of transactions template
Assets = Liabilities + Owners’ Equity

Cash + Accounts + Supplies = Accounts Payable + Capital, Fandi + Net Profit - Drawings,
Receivable Fandi
(a)
(b)
(c)
(d) + $5,250
(Fees Revenue)
(e) - $1,000
(Rent Expense)
(f) - $880
(Vehicle Expense)
- $350
(Misc Expense)
(g) - $1,200
(Salaries Expense)
(h) - $575
(Supplies Expense)
(i) + $7,350
(Fees Revenue)
(j)
Bal $8,595
3

(Student’s copy)
CLASSWORK
1. Smart Alec has the following assets and capital as at 1 April 20X1:
Cash at bank $ 3,000 Debtors $ 900 Capital, Alec $3,900
Apr Purchased a motor vehicle from Blue Motors Ltd for $8,500, paying $1,000
2 and the balance payable by end of April.
9 Purchased office furniture for $450 cash.
12 Received amount owing to the business by a debtor $300.
13 Owner introduced additional cash, $1,000
15 Make a payment of $500 to Blue Motors Ltd for the motor vehicle purchased.
Required:
(a) Using the analysis chart in the next page (as in Lecture example on pg 4), show
the effect of each of the above transactions on the items in the balance sheet.
(The effects of transaction on April 2 is partially done for you)
(b) Prepare the final balance sheet as at 15 April 20X1.
4
Classwork (cont.)
1 (a)

Assets = Liabilities + Owner’s Equity
20X1 Cash at bank + Debtors + Motor Vehicle + Capital, Alec
Apr 1 + $ 3,000 + $ 900 + $ 3,900
2 - $ 1,000
9
12
13
15
------------ ------------- -------------- -------------- ------------- -------------
------------ ------------- -------------- -------------- ------------- -------------
5

(Lecturer’s Copy)
Suggested Solutions
1.
For a business to operate, it needs resources (known as assets); these resources have to be supplied
by someone, either the owner and / or other external parties. That amount of the owner’s
investment or interest in the business is known as owner’s equity while the amounts owed by a
business to external parties are known as liabilities.
Thus, the relationship between resources owned and the sources from which the resources have
been supplied can be expressed as
Resources = Sources of resources
Assets = Owner’s equity + Liabilities
This relationship is always in equality. The accounting equation must always balance.
(a) $51,500 ($20,000 + $31,500)
(b) $52,750 ($62,750 - $10,000)
(c) $19,000 ($57,000 - $38,000)
Coca-Cola Owners’ Equity: $11,800 ($24,501 - $12,701)

PepsiCo Owners’ Equity: $9,291 ($23,474 - $14,183)
6
4. For each of the following items which relate to the business of Woolly Cotton, retailer of
children’s wear:
i. Select a short name which you consider suitable and unambiguous to describe each
item.
ii. Classify the item as an asset ( A ), liability ( L ) or owner’s equity ( OE ).
Part (a) has been done for you as an illustration.
(i) ( ii )
a. Cash in the business bank account. Cash at Bank A
b. Tables and racks used to display goods for sale. Furniture & A
Fittings
c. The amount which C Wool (the owner) paid in to Capital, Wool OE
commence the business.
d. Amounts owing by the firm to manufacturers who have Creditors or L
supplied goods. A/cs Payable
e. Amounts owing by customers who have purchased Debtors or A
goods. A/cs Receivable
f. A loan to the firm by B Nylon (a friend) Loan from L
Nylon
g. Goods which are held for resale. Stock or A
Inventory
h. Change kept in the cash registers. Cash in hand A
i. The amount by which, under arrangement with the Bank overdraft L

bank, the firm has overdrawn its account with the bank.
j. Van used for delivering goods. Motor Vehicle A
k. The amount that C Wool has withdrawn from the Drawings, Wool -OE
business in anticipation of profits.
7
(a) Compute the net profit for the year ended 30 April 20X1.
Net Profit = $131,600 - $1,475 - $18,900 - $3,550 - $2,800 - $11,250 - $65,850

= $27,775.
(b) Prepare the balance sheet as at 30 April 20X1 using the narrative form (lecture notes p.
3). Please begin with OE section followed by A – L.
Hougang Travel Service

Balance Sheet
as at 30 April 20X1
Capital 25,000
37,775
Represented by:
Assets
Cash 26,525
Accounts Receivable 15,675
Supplies 1,675 43,875
Less: Liabilities
Accounts Payable 6,100
Net Assets 37,775
8
6. Warren, Problem 1-3B, p. 38
In addition, prepare the balance sheet as at 31 March 20X1 using the narrative form (lecture notes p. 3). Please begin with OE section followed by A – L.
Assets = Liabilities + Owners’ Equity

Cash + Accounts + Supplies = Accounts Payable + Capital, Fandi + Net Profit* - Drawings, Fandi
Receivable
(a) + $15,000 + $15,000
(b) + $750 + $750
(c) - $625 - $625
(d) + $5,250 + $5,250
(e) - $1,000 - $1,000
(f) - $1,230 - $880
- $350
(g) - $1,200 - $1,200
(h) - $575 - $575
(i) + $7,350 + $7,350
(j) - $1,500 - $1,500
Bal $14,695 $7,350 $175 $125 $15,000 $8,595 - $1,500
Owners’ equity is the right of owners to the assets of the business. These rights are increased by owners’ investments and revenues and decreased by
owners’ withdrawals and expenses.
+ Net Profit (*)

+ $5,250 (Fees Revenue)
- $1,000 (Rent Expense)
- $880 (Vehicle Expense)
- $350 (Miscellaneous Expense)
- $1,200 (Salaries Expense)
- $575 (Supplies Expense)
+ $7,350 (Fees Revenue)
$8,595
9
Fandi Insurance Agency

Balance Sheet
as at 31 Mar 20X1
Capital 15,000
22,095
Represented by:
Assets
Cash 14,695
Accounts Receivable 7,350
Supplies 175 22,220
Less: Liabilities
Accounts Payable 125
Net Assets 22,095
10

(Lecturer’s Copy)
CLASSWORK SOLUTION
1 (a) on p. 12.
1 (b)
Smart Alec
Balance Sheet
as at 15 Apr 20X1
Capital, Alec 4,900
Represented by:
Assets
Cash at bank 2,350
Debtors 600
Motor vehicle 8,500
Office furniture 450 11,900
Less: Liabilities
Creditor, Blue Motors Ltd 7,000
Net Assets 4,900
11
1 (a) Analysis of effects of transactions on accounting equation:

Assets = Liabilities + Owner’s Equity
20X1 Cash at bank + Debtors + Motor vehicle + Office Furniture Creditor, Blue Motors + Capital, Alec
Apr 1 + $ 3,000 + $ 900 + $ 3,900
2 - $ 1,000 + $ 8,500 + $ 7,500
9 - $ 450 + $ 450
12 + $ 300 - $ 300
13 + $ 1,000 + $1,000
15 - $ 500 - $ 500
------------ ------------- -------------- -------------- ------------- -------------
$ 2,350 $ 600 $ 8,500 $ 450 $ 7,000 $ 4,900
------------ ------------- -------------- -------------- ------------- -------------
12
Lecture 3 Application of Double-Entry Principles (Part 1)

(Student’s copy)
(For weeks beginning 30 Apr 2018)
Learning Objectives
• explain the accounting process.
• explain the need for an account.
• apply the basic debit and credit rules in accounting.
• apply the double entry principles in analysing business transactions.
edition’, third edition, Singapore: Cengage Learning, Chapter 2 p. 48 – 68
Reference Kirkwood, Ryan, Falt, Stanley – ‘Accounting: An Introductory Framework’ 2nd

Edition, Pearson Longman, Chapter 2 p. 29 - 47
Many transactions occur in all businesses every day; it is impossible to draw up a new balance sheet
after every transaction. Neither do we keep track of the changes to the various A, L, OE, R and E
items by updating the accounting equation each time a transaction occurs (see Lecture 2, page 6).
How do we solve this problem then?
1. Ledger Accounts
An _________________ is a device to record (capture) all the changes (increases and decreases) to
a particular item.
E.g. all transactions affecting (increasing or decreasing) cash are recorded in the ‘Cash at bank’
account and those involving furniture will be recorded in the ‘Furniture’ account.
All the accounts are kept together in a _________________.
A method of presenting accounts is the columnar account format – Warren p.48.
Account Name/Account Title

Balance
Date Particulars Debit ($) Credit ($) Debit ($) Credit ($)
One column (either debit column or credit column) of the account will record all increases to the
item while the other column will record all the decreases. After every record of increase or
decrease to that account, the balance in the account is calculated.
1
2. Rules in Accounting (see Appendix 1)
Rule 1 Rule 2 Rule 3

Types of
accounts Each type of account Increases recorded on Decreases recorded
has been given a nature same side as nature of on opposite side to
account nature of account
Asset
Liability
Owner’s equity
Revenue
Expenses
A simple way to remember the nature of each type of account and hence the account rules is via the
accounting equation.
Recall: A = OE + L
A = (OE {at beginning) + R – E) + L If OE is credit in
A = (Capital – Drawings + R – E) + L nature; then what is
the nature of the
‘Drawings’ account –
A + E + D = L + R + C which is considered
–ve OE?
Debit nature Credit nature Answer: Debit !
After Eating Dinner , Let’s Read Comics
2
Illustration: Warren, p. 13 – 14 (example from lecture 2)
20X1 Transaction Accounts affected Entered on

____ side of a/c
(a) Nov 1 Chris Chee deposits $25,000 in
a bank account in the name of
Internet Solutions.
(b) Nov 2 Internet Solutions paid
$20,000 cash for land.
(c) Nov 3 Internet Solutions bought

supplies for $1,350 and
agreeing to pay the supplier in
the near future.
Cash There were only two transactions involving

DR ($) CR ($) Balance
cash; the usefulness of an account becomes
more obvious when one consider the
Date Particulars (+) (-) DR ($) CR ($)
numerous transactions affecting cash in just
Nov 1 25,000 one day in any typical firm …
2 20,000
What is the cash balance as at 2 Nov 20X1?
Answer: _____________
Capital, Chris Chee

(-) (+) DR ($) CR ($)
Date Particulars
Nov 1 25,00
0
Land

(+) (-) DR ($) CR ($)
Date Particulars
Nov 2 20,000
Supplies Accounts payable

DR ($) CR ($) Balance DR ($) CR ($) Balance
(+) (-) DR ($) CR ($) (-) (+) DR ($) CR ($)
Date Particulars Date Particulars
Nov 3 1,350 Nov 3 1,350
3
3. Analysing Transactions Warren p. 56 (modified)

Determine:
 which account is affected
 whether account is Asset, Liability, Owners’ Equity, Revenue or Expense account
(Type of account)
 nature of the account
 for each account affected by the transaction, whether account increases or decreases
 whether each increase or decrease should be recorded as a debit or credit
 the amount
Exercise: Analyse the transactions and ascertain the accounts to be debited and credited for
Alpha Repair Shop (refer to p. 5). Use the following accounts for this exercise:
Cash At Bank Capital, Adam

Tools & Equipment Drawings, Adam
Motor Vehicle Repair Fees Revenue
Debtor Rental Expense
Loan from Bank Creditor, N Motors
4
Business Accounting 1 Temasek Polytechnic
Lecture Exercise: Alpha Repair Shop
Date Transaction Accounts Affected Type of Nature of Increase or Dr or Cr Amount

20X1 account account Decrease $
Jun 2 Adam, the owner, invested cash
$5,000 to start his business.
4 Purchased tools and equipment
for cash $2,000.
7 Obtained a $10,000 loan from
bank.
8 Bought a van on credit from
Neesun Motors for $15,000.
12 Performed repair service and
earned fees revenue of $1,000 of
which $800 is received.
15 Paid rental expense $600.
22 Received the balance of $200

from customer owing on 12th.
25 Paid Neesun Motors $3,000 for
amount outstanding.
30 Adam took $100 from the bank
to pay for daughter’s school fees.
5
Lecture Exercise: Alpha Repair Shop

How the ledger accounts will appear … …
Assets
Cash at bank Tools and equipment

Balance Balance
Date Particulars DR($) CR($) DR($) CR($) Date Particulars DR($) CR($) DR($) CR($)
+ - + -
Jun 2 5,000 Jun 4 2,000
4 2,000
7 10,000 Motor Vehicle
12 800 Balance
15 600 Date Particulars DR($) CR($) DR($) CR($)
22 200 + -
25 3,000 Jun 8 15,000
30 100
Debtor
Balance
Date Particulars DR($) CR($) DR($) CR($)
+ -
Jun12 200
22 200
Liabilities
Loan from bank Creditor, N Motors
Balance Balance
- + - +
Jun 7 10,000 Jun 8 15,000
25 3,000
Owner’s Equity
Capital, Adam Drawings, Adam
Balance Balance
- + + -
Jun 2 5,000 Jun 30 100
Revenue and Expenses

Repair Fees Revenue
Balance
- +
Jun 12 1,000
Rental Expense
Balance
+ -
Jun 15 600
6
Columnar Account APPENDIX 1

Account Name
Balance
Date Particular DR ($) CR ($) DR ($) CR ($)
A = (OE + R – E) + L
A = (C – D + R – E) + L
A + E + D = L + R + C
Asset Liability
Account Name Account Name
Legend
Balance Balance A – Asset
Date Particulars DR ($) CR ($) DR ($) CR ($) Date Particulars DR ($) CR ($) DR ($) CR ($) E – Expense
+ - - + D – Drawings
L – Liability
Expense Revenue R – Revenue
Account Name Account Name C – Capital
Balance Balance
Date Particulars DR ($) CR ($) Date Particulars DR ($) CR ($) DR ($) CR ($)
DR ($) CR ($)
+ - - +
Drawings Capital
Account Name Account Name
Balance Balance
Date Particulars DR ($) CR ($) DR ($) CR ($) Date Particulars DR ($) CR ($) DR ($) CR ($)
+ - - +
7
Business Accounting
APPENDIX 2
ACCOUNTING PROCESS
BUSINESS TRANSACTIONS
captured in
SOURCE DOCUMENTS
recorded in
JOURNALS
Lecture 4
posted to
CASH
THE LEDGER
Lecture 5
checked by
XYZ Company
Trial Balance
As at 31 May 2016
TRIAL BALANCE
Lecture 5
prepared into
Lectures 7 - 11
FINANCIAL REPORTS
8
Tutorial 3 Application of Double-Entry Principles (Part 1)

(Student’s copy)
(For week beginning 14 May 2018)
1. Assuming the firm has only the following transactions:

Date Transaction Accounts Type of Effect/
20X1 affected account Amount
Jan 1 Owner introduced cash $5,000 to
start a business.
5 Service customers and received

fees $200.
12 Paid for miscellaneous expenses

$80.
15 Owner took out $100 from the

business bank account to pay for
personal expenses.
Required:
(a) Complete the above table.
(b) (i) What is the balance of ‘Cash at bank’ as at 15-1-20X1?

(ii) How much profit is made during the half month of January 20X1? How does
profit affect Owner’s Equity?
(iii) How does the transaction on 15-1-20X1 affect Owner’s Equity?
(c) Draw up the balance sheet (in narrative format) as at 15 January 20X1.
2. (a) What is an account?

(b) What are the 5 basic types of accounts? Give 2 examples of each type.
(c) What is the relationship between an account and the ledger?
(d) ‘All increases to an account are always entered on the debit side while the other side
(i.e. credit side) will record all the decreases.’
Do you agree with the above statement?
1

Do not follow the instructions in Warren for this question.
Required:
For each transaction, identify the ledger accounts affected and complete the following table.
Analysis Table for Lulu Icecream

The first example has been shown below:
Transaction Accounts Type of Nature of Inc/ Dr/ Amount
involved account account Dec Cr ($)
(A, L, (Dr or
OE, R, Cr)
E)
(a) Lulu invested $20k Cash at Bank Asset Dr Inc Dr 20,000
in the business Capital, Lulu Tan OE Cr Inc Cr 20,000
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
2
4. Refer to the diagram on Appendix 2 of Lecture 3 – ‘The Accounting Process’
Required:
(a) Define ‘source document’ and highlight its purpose in accounting.
(b) Fill in the table below:

Transaction Source document
i. charge customer for service provided
ii. telephone expense incurred for the month
iii. purchase goods from supplier
(c) In which of the two financial statements (Balance Sheet or Profit and Loss
Statement) can you find the following 5 types of accounts :
(Hint: Assets, liabilities and OE are found in Balance Sheet whereas revenue and
expenses are found in Profit and Loss Statement)
Type of account Financial statement

E.g. Land and Buildings ( Asset )
Interest received
Cash at bank
Loan from bank
Wages and salaries
Capital, Ron
3
Lecture 4 Application of Double-Entry Principles (Part 2)

(Student’s copy)
(For weeks beginning 14 May 2018)
Learning Objectives
• explain the purpose of a journal.
• prepare general journal entries to record business transactions.
edition’, third edition, Singapore: Cengage Learning, Chapter 2 p. 48 – 68
Edition, Pearson Longman, Chapter 2 p. 29 – 47
In the last lecture, we learnt to analyse the business transactions and ascertain the accounts that are
affected. The next step would be to record the business transactions in a journal.
1. General Journal Entries

- a journal is like a diary of the firm – it keeps a chronological record of all transactions
that has occurred
- the process of recording a transaction in the journal is called journalising or preparing

general journal entries
- debit accounts precede the credit accounts
- account title of each credit entry is indented
- every journal entry is accompanied by a narration / explanation
- total debit (DR) = total credit (CR)
Format of Journal
Date Particulars Dr Cr
A/c to be debited $?
A/c to be credited $?
Description of
transaction
1
Lecture Exercise 1: Journalise the transactions of Alpha Repair Shop.

(Refer to analysis table on p. 5 of Lecture 3 to help you)
Date Transaction
20X1
Jun 2 Adam, the owner, invested cash $5,000 to start his business.
4 Purchased tools and equipment for cash $2,000.
7 Obtained a $10,000 loan from bank.
8 Bought a van on credit from Neesun Motors for $15,000.
12 Performed repair service and earned fees revenue of $1,000 of which
$800 is received.
15 Paid rental expense $600.
22 Received the balance of $200 from customer owing on 12th.
25 Paid Neesun Motors $3,000 for amount outstanding.
30 Adam took $100 from the bank to pay for daughter’s school fees.
Use the following accounts for this exercise:
Cash At Bank Capital, Adam

Tools & Equipment Drawings, Adam
Motor Vehicle Repair Fees Revenue
Debtor Rental Expense
Loan from Bank Creditor, N Motors
2
Lecture Exercise 1: Alpha Repair Shop
General Journal
Date Particulars DR CR
20X1 $ $
Jun 2 5,000
Cash at bank 5,000
Capital, Adam
Owner invested cash to start business.
4 Tools and equip 2,000
ment 2,000
Cash at Bank
Purchased tools and equipment.
7 Cash at bank 10,000
Loan fro 10,000
m bank
Obtained a loan from bank.
8 Motor vehicle 15,000
Creditor, N 15,000
Motors
Bought van on credit.
12 Cash at bank 800
Debtor 200
Repair fees revenue 1,000
Performed repair service, receiving cash and balance is on
credit.
15 Rental expense 600

Cash at b 600
ank
Paid rental expense.
22 Cash at bank 200
Debtor 200
Received payment from debtor.

25 Creditor, N Motors 3,000
Cash at bank 3,000
Paid creditor for amount outstanding.

30 Drawings, Adam 100
Cash at bank 100
Owner took out cash for personal use.
2. Double Entry System - Summary
 means for every transaction, the total ________ amounts = total __________ amounts.
 does NOT mean only two accounts are affected in every transaction.
 every transaction will affect ___________ two accounts in the accounting equation.
3
Lecture Exercise 2: Analyse and journalise the transactions of Beta Dentist.

(The relevant tables are printed to help you)
Date Transaction
20X1
Jan 3 Paid rent for premises $300.
10 Received $200 owing by patients for last month’s fees revenue.
15 Owner, Dr East contributed additional cash $800 and computer worth
$5,000.
20 Paid creditors outstanding accounts $2,500.
24 Dental fees earned $6,000, of which $5,700 has been received and the
balance owing.
28 Paid dental assistant’s salary $1,000.
30 Owner took out $600 from the business for personal use.
Use the following accounts for this exercise:
Cash at Bank Capital, Dr East

Office Equipment Drawings, Dr East
Debtors Salaries Expense
Creditors Rent Expense
Dental Fees Revenue
4
Lecture Exercise 2: Beta Dentist
Date Transaction Accounts Affected Type of Nature of Increase or Dr or Cr Amount

20X1 account account Decrease $
Jan 3 Paid rent for premises $300. Rent expense E Dr + Dr 300
Cash at bank A Dr - Cr 300
10 Received $200 owing by patients Cash at bank A Dr + Dr 200

for last month’s fees revenue. Debtors A Dr - Cr 200
15 Owner, Dr East contributed Cash at bank A Dr + Dr 800

additional cash $800 and
computer worth $5,000. Office equipment A Dr + Dr 5,000
Capital, Dr East OE Cr + Cr 5,800
20 Paid creditors outstanding Creditors L Cr - Dr 2,500

accounts $2,500. Cash at bank A Dr - Cr 2,500
24 Dental fees earned $6,000, of Cash at bank A Dr + Dr 5,700

which $5,700 has been received Debtors A Dr + Dr 300
and the balance owing. Dental fees revenue R Cr + Cr 6,000
28 Paid dental assistant’s salary Salaries expense E Dr + Dr 1,000

$1,000. Cash at bank A Dr - Cr 1,000
30 Owner took out $600 from the Drawings, Dr East - OE Dr + Dr 600

business for personal use. Cash at bank A Dr - Cr 600
5
Lecture Exercise 2: Beta Dentist
General Journal
Date Particulars DR CR
20X1 $ $
Jan 03 Rent expense 300
Cash at bank 300
Paid rent fo
r premises.
10 Cash at bank 200

Debtors 200
Received
payment from debtors.
15 Cash at bank 800

Office equipment 5,000
C 5,800
apital, Dr East
Owner contributed cash and computer
into business.
20 Creditors 2,500
Cash at bank 2,500
Paid cred
itors outstanding accounts.
24 Cash at bank 5,700

Debtors 300
Dental fees revenue 6,000
Dental f
ees earned; $5,700 was received in cash
and $300 still owing by patients.
28 Salaries expense 1,000

Cash at bank 1,000
Paid den
tal assistant’s salary.
30 Drawings, Dr East 600

Cas 600
h at bank
Owner took out money for personal use.
6
Lecture 5 Preparation of Trial Balance

(Student’s copy)
Learning Objectives:
• prepare ledger accounts by posting transactions from the general journal to the general
ledger.
• derive the balance of the accounts in the general ledger.
• explain the functions of a trial balance.
• prepare a trial balance by extracting the account balances from the general ledger.
• describe the different types of errors revealed and not revealed by the trial balance.
• prepare a corrected trial balance given the errors in recording.
• describe the impact of computerisation on the trial balance and financial statements.
edition’, third edition, Singapore: Cengage Learning, Chapter 2 p. 46 – 48, 56 - 71.
Edition, Pearson Longman, Chapter 2 p.47 - 52
In the last lecture, we learnt to record business transaction in a journal. In this lecture, we will learn
to transfer the journal entries to the accounts. This process is called posting.
1. Ledger Accounts (Recap of Lecture 3)

• An account is a device to record all the changes (increases and decreases) to a particular
item.
• In BA, we use columnar account format.
Format of a columnar account
Account Name
Balance
Date Particulars Debit ($) Credit ($) Debit ($) Credit ($)
1
• All accounts are kept in a ledger.
Cash
A ledger is a group of
accounts for a business.
(Warren p. 46)
Cash
Creditor Creditor
Capital
Capital
(Ledger)
2. Preparation of Ledger Accounts (Warren p. 56)

• To prepare ledger accounts is to post transactions from journal to the ledger.
• Based on the previous general journals on Alpha Repair Shop and Beta Dentist in
Lectures 3 & 4, we now proceed to post the transactions to the ledger accounts.
Procedure for posting transactions from the journal to the ledger is as follows: - KW p. 52.
(1) Identify the account to be opened and fill in the account name.
(2) Identify the side of the account affected, i.e. DR or CR.
(3) Transfer/Fill in the date, the particulars (which is the corresponding account
affected) and the amount.
(4) Calculate the balance (either DR bal. or CR bal.) and fill in the amount in the
balance column.
2
Lecture Exercise: Alpha Repair Shop Ledger (Refer to journal entries on p. 3 Lecture 4)
Date Particulars $ $
20X1
Jun 02 Cash at bank 5,000
Capital, Adam 5,000
Owner invested cash to start business.
An illustration of posting the journal entry on 2 June 20X1
Cash at bank
Balance
Date Particulars DR ($) CR ($) DR ($) CR ($)
Jun 2 Capital, Adam 5,000 5,000
Capital, Adam
Balance
20X1
Jun 2 Cash at bank 5,000 5,000
3
The entire exercise is illustrated as follows:
Cash at bank
Balance
20X1
Jun 2 Capital, Adam 5,000 5,000
4 Tools and equipment 2,000 3,000
7 Loan from bank 10,000 13,000
12 Repair fees revenue 800 13,800
15 Rental expense 600 13,200
22 Debtor 200 13,400
25 Creditor, N Motors 3,000 10,400
30 Drawings, Adam 100 10,300
Capital, Adam
Balance
20X1
Tools and Equipment

Balance
20X1
Loan from bank

Balance
20X1
4
Motor Vehicle
Balance
20X1
Jun 8 Creditor, N Motors 15,000 15,000
Debtor
Balance
20X1
Jun 12 Repair fees revenue 200 200
22 Cash at bank 200 0
Creditor, N Motors
Balance
20X1
Jun 8 Motor vehicle 15,000 15,000
25 Cash at bank 3,000 12,000
Repair Fees Revenue

Balance
20X1
Jun 12 Cash at bank 800 800
Debtor 200 1,000
Rental Expense
Balance
20X1
5
Drawings, Adam
Balance
20X1
3. Balance of the Accounts in the General Ledger

The balance of each account is calculated after posting each journal entry. Thus, this
columnar format shows a running balance of each of the accounts.
Note:
If the amounts on both debit and credit sides are equal, ‘balance’ will be zero.
Computing balance of Cash at Bank without using an account:

Lecture Exercise: Alpha Repair Shop Ledger (Refer to journal entries on p. 3 Lecture 4)
Balance =
=_______________
4. Functions of the Trial Balance – KW p. 54
Q1:
What is a trial balance?
A1: The trial balance is a list of
all ledger account balances
Q2: prepared at regular intervals
Why do we need a Trial usually at the end of each
Balance? month.
(What is its purpose)?
A2: It helps to check the
arithmetic accuracy of the
ledger and to ensure that double
entry has taken place.
(by showing whether the total
debits equal the total credits).
6
5. Preparation of the Trial Balance
Exhibit 1: The Trial Balance
Trial Balance
XYZ Company
Ledger Trial Balance
Balances of individual as at June 30, 20X1
ledger account
A/C Title Dr ($) Cr ($)

Cash at bank 15,000
Creditor 3,000
Capital – Mr. X 12,000
Total ………. 15,000 15,000
Dr = Cr
The above exhibit presents a simple process. The procedure of preparing a trial balance is listed as
follows (KW p. 54):
1. Record the heading of the trial balance (company name, trial balance and the date).
2. Locate the balance of each ledger account. (ledger accounts have been balanced off).
3. Transfer the account names; the balances from each ledger account onto the
corresponding debit or credit column of the trial balance.
4. Total the debit and credit columns. The column totals must be equal.
Continuing from p. 4 - 6: The Trial Balance of Alpha Repair Shop
Alpha Repair Shop

Trial Balance as at June 30, 20X1
Dr ($) Cr ($)
Cash at bank …….……… 10,300
Tools and Equipment …… 2,000
Motor Vehicle …………. 15,000
Loan from bank ………… 10,000
Creditor – Neesun Motors 12,000
Capital, Adam …….….… 5,000
Drawings, Adam ……..… 100
Repair Fees Revenue …… 1,000
Rental Expense ……...…. 600
28,000 28,000
7
Q3: Trial Balance will always balance.
Why?
A3: trial balance is always balance because for every
transaction, there is a double entry - total debits equal
total credits.
8
6. Errors in a Trial Balance
Errors NOT Disclosed by the Trial Balance Errors Disclosed by the Trial Balance
(Trial Balance is equal even though there are errors) (Trial Balance is unequal)
Errors entered at the Journal stage

- Does not happen in
computerised accounting
(1) Transactions recorded wrongly system
(a) Amount recorded is different from amount
in source document
(b) Correct amount recorded in wrong accounts
(2) Transactions are not recorded in the system
(i.e. omitted entirely)
(3) Transactions are recorded twice in the system Posting Errors Disclosed by the Trial Balance
- Can happen in computerised accounting system. (1) Debit or credit posting omitted
If such errors occur in the journals, then the computer (2) Debit posted as credit or vice-versa
system will post erroneous journal to ledger resulting i.e. posted 2 debits or 2 credits
in Garbage In Garbage Out (3) Transposition error (sequence of a number is
wrong) for 1 side of entry
(4) Error in addition and balancing of accounts Debit
or credit posting omitted
9
Errors Not Disclosed by the Trial Balance
(Trial balance is equal even though there are errors)
A number of errors may be made that will not be revealed by a trial balance that
balances. This is especially so in a computerised accounting system. Often these
errors go undetected unless circumstances cause a check to be made. These errors are
entered at the journal stage. Errors at the journal stage are posted automatically by the
computer system to the ledger.
(1) Transactions recorded wrongly
(a) Amount recorded is different from amount in the source document
Capital contribution by Adam is recorded as $500 instead of $5,000.
Illustration 1: Alpha Repair Shop

20X1
Jun 2 Cash at bank 500
Capital, Adam 500
To record capital contribution by Adam.
A journal entry needs to be passed to correct the error by reversing the

incorrect entry and passing a correct entry.

20X1
Jun 30 Capital, Adam 500
Cash at bank 500
To reverse wrong entry made on capital
contribution by Adam.
Jun 30 Cash at bank 5,000

Capital, Adam 5,000
To record capital contribution by Adam.
10
(b) Correct amount recorded in wrong accounts
Utilities expense paid $120 was recorded by debiting Office Expense and
crediting Cash at Bank.

20X1
Jun 5 Office Expense 120
Cash at Bank 120
Utilities expense paid $120.
A journal entry needs to be passed to correct the error by reversing the

incorrect entry and passing a correct entry.

20X1
Jun 30 Cash at Bank 120
Office Expense 120
To reverse wrong entry made on payment of
utilities expense.
Jun 30 Utilities Expense 120

Cash at Bank 120
To record payment of utilities expense.
11
(2) Transactions are not recorded in the system (i.e. entirely omitted)
Purchase an office furniture $300 on credit from NH Furniture done on 15 June

were entirely omitted when the accounts assistant record the month transactions in
the accounting system.

Nothing was recorded for the above.
A journal entry needs to be passed to record the transaction.

20X1
Jun 15 Office Furniture 300
Creditor – NH Furniture 300
To record purchase of office furniture $300 on
credit from NH Furniture.
12
(3) Transactions are recorded twice in the system
Rental expenses $300 was recorded twice on 3 June.

20X1
Jun 3 Rental Expense 300
Cash at Bank 300
To record rental expense paid $300.
Jun 3 Rental Expense 300

Cash at Bank 300
To record rental expense paid $300.
A journal entry needs to be passed to correct the error by reversing ONE

double entry.

20X1
Jun 30 Cash at Bank 300
Rental Expense 300
To reverse entry recorded twice.
13
7. Prepare Corrected Trial Balance
Lecture Exercise 1
The trial balance of Alpha Repair Shop as at 30 June 20X1 is as follows:
Alpha Repair Shop.

Trial Balance as at 30 June 20X1
DR ($) CR ($)
Cash at bank 10,300
Tools and Equipment 2,000
Motor Vehicle 15,000
Capital, Adam 5,000
Drawings, Adam 100
Repair Fees Revenue 1,000
Rental Expense. 600
28,000 28,000
Investigation of the accounting records reveals the following errors:

1. Recorded $200 cash revenue transaction by debiting Repair Fees Revenue and
crediting Cash at Bank.
2. Additional cash contribution $400 by Adam was not recorded.
3. Cash Receipt for purchase of Tools and Equipment shows $880. $800 was
recorded in the accounting system.
4. Personal cash drawings made by Adam $50 was recorded twice.
Required:
(a) Prepare journal entries to correct errors.

(b) Prepare a corrected trial balance as at 30 June 20X1 complete with a heading.
14
Solution:
(a) Journal Entries
1 Jun 30 Cash at Bank 200
Repair Fees Revenue 200
To reverse wrong entry for cash revenue
transaction.
Cash at Bank 200

Repair Fees Revenue 200
To record correct entry for cash revenue
transaction

Capital, Adam 400
To record additional contribution by Adam

Tools and Equipment 800
To reverse wrong entry for purchase of Tools and
Equipment.
Tools and Equipment 880

Cash at Bank 880
To record purchase of Tools and Equipment.

Drawings, Adam 50
To reverse wrong entry for personal cash drawings
by Adam previously recorded twice.
(b) The corrected trial balance is prepared as follows:
Alpha Repair Shop

Dr ($) Cr ($)
Cash at bank [$10,300 + $200+ $200 + $400 + 11,070
$800 - $880 + $50]
Tools and Equipment [$2,000 - $800 + $880] 2,080
Capital, Adam [$5,000 + $400] 5,400
Drawings, Adam [$100 - $50] 50
Repair Fees Revenue [$1,000 + $200 + $200] 1,400
Rental Expense 600
Total 28,800 28,800
15
Trial balance is a valuable tool for checking the accuracy of the double entry system
and the accuracy of the journalise stage of the accounting process. It gives a
preliminary result of the business recording status before the final reports are
prepared.
16
Online Learning
Lecture Exercise 2: Beta Dentist (continuation from lecture 4)
(a) Post the transactions from the journal to the ledger, and complete the balancing of
accounts at the end of the month.
(b) Prepare the Trial Balance as at 31 Jan 20X1.
Important Note: This firm has been in business before 1 January 20X1. Some assets
and liabilities were there at the start of current financial period.
Assets and liabilities as at 1 January 20X1

$
Cash at Bank 6,800
Dental equipment 10,000
Debtors ( owing by patients ) 200
Creditors 3,500
(a)
Cash at bank
Balance
20X1
Jan 1 Bal b/d 6,800
3 Rent expense 300 6,500
10 Debtors 200 6,700
15 Capital, Dr East 800 7,500
20 Creditors 2,500 5,000
24 Dental fees revenue 5,700 10,700
28 Salaries expense 1,000 9,700
30 Drawings, Dr. East 600 9,100
Dental Equipment
Balance
20X1
Jan 1 Bal b/d 10,000
17
Debtors
Balance
20X1
Jan 1 Bal b/d 200
10 Cash at bank 200
24 Dental fees revenue 300 300
Creditors
Balance
20X1
Jan 1 Bal b/d 3,500
20 Cash at bank 2,500 1,000
How much is the Capital, Dr East a/c on 1 January 20X1?
Capital, Dr East
Balance
20X1
Jan 1 Bal b/d 13,500
15 Cash at bank 800 14,300
Office equipment 5,000 19,300
Rent Expense
Balance
20X1
Jan 3 Cash at bank 300 300
18
Office Equipment
Balance
20X1
Jan 15 Capital, Dr East 5,000 5,000
Dental Fees Revenue

Balance
20X1
Jan 24 Cash at bank 5,700 5,700
Debtors 300 6,000
Salaries Expense
Balance
20X1
Jan 28 Cash at bank 1,000 1,000
Drawings, Dr East
Balance
20X1
Jan 30 Cash at bank 600 600
19
(b)
Beta Dentist
Trial balance as at 31 January 20X1
DR ($) CR ($)
Cash at bank 9,100
Debtors 300
Dental Equipment 10,000
Office Equipment 5,000
Creditors 1,000
Capital, Dr. East 19,300
Drawings, Dr. East 600
Dental Fees Revenue 6,000
Salaries Expense 1,000
Rental Expense 300
Total 26,300 26,300
20
Self Study
Impact of Computerisation on Trial balance and Financial Statements
Computers have a high degree of reliability and are suitable for repetitive processing.
Many businesses are now using an accounting software package to record their
business transactions. There are many off-the-shelf accounting packages for small and
medium size businesses such as MYOB (Mind Your Own Businesses), Sage 300
ERP, SAP, Oracle, QuickBooks. These programmes follow instructions accurately
and consistently. There are many built-in internal controls to ensure data that are
keyed into the system are accurately processed.
In a computerised accounting system, the same accounting processes apply except that
most of the steps are performed automatically by the system.
Manual Accounting Computerised Accounting

System System
SIMILAR
Supporting source
Every business transaction needs a source document.
documents
Source documents can be in softcopy or hardcopy form.
SIMILAR
Analyse transaction into
Every transaction needs to be analysed into its debit and
Debits & Credits
credit components manually.
It can either be manually if
Record transactions in user key in directly into the
Manually
journals system, or automated if
interfaced from other systems.
Post accounts to ledger Manually Automated
Extract trial balance Manually Automated
Prepare financial
Manually Automated
statements
Basic controls built-in the accounting system
• Journal entries will not be accepted unless debit totals equal credit totals.
• Transactions listing of entries for audit trail is generated.
• Automatic postings are made to ledger accounts (not done manually) and
balances will be generated automatically.
• Trial balance and final statements are generated automatically.
21
Will there be any cases of an unequal trial balance in a computerised

system?
No.
• Each journal entry entered is balanced.
• Posting is done automatically.
• Ledger account balances will be computed
automatically.
• Trial balance generated will always balance.
Can a trial balance not be balanced?

~ End of Lecture ~
YES, only in a manual accounting system.
Does it mean that once a trial balance balances,

there is no error?
NO, there can still be error in a trial balance
generated by a computerised accounting system.
22
Lecture Exercise 3 (Correct a Trial Balance that is NOT balanced)
The trial balance of Ron Ang’s business as at 30 April 20X1 does not balance:
Dr ($) Cr ($)
Cash at bank 7,100
Debtors 1,150
Creditors 1,900
Capital, Ron Ang 3,000
Service revenue 3,450
Rent expense 850
8,250 9,200
Investigation of the accounting records reveals the following errors:

1. Understated both Cash at Bank and Capital, Ron Ang by $400 while posting.
2. Posted a $6,500 credit to Creditors as $5,600.
3. Paid telephone bill $150 but did not post the expense amount.
4. Listed Rent expense as a credit in the trial balance.
Required:
Prepare the corrected trial balance as at 30 April 20X1, complete with a heading.
Solution:
The corrected trial balance is prepared as follows:
Ang’s Co.
Trial Balance as at 30 April 20X1
DR ($) CR ($)
Cash at bank [7,100 + 400] 7,500
Debtors 1,150
Creditors [1,900 + (6,500-5,600)] 2,800
Capital, Ron Ang [3,000 + 400] 3,400
Rent expense 850
Telephone expense 150
9,650 9,650
23

(Student’s copy)

Do not follow the instructions in Warren for this question.
(a) Required:
For each transaction, identify the ledger accounts affected and complete the Analysis Table
below. Use the chart of accounts given in the question but replace the accounts: “Prepaid
Insurance” and “Fees Earned” with “Insurance Expense” and “Fees Revenue”
respectively.
Analysis Table for Mandarin Designs

Oct Transaction Accounts Type of Nature of Inc/ Dr/ Amount

(A, L, (Dr or
OE, R, Cr)
E)
10 Hui Hui transferred Cash at Bank Asset Dr Inc Dr 15,000
cash from a personal Capital, Hui Hui OE Cr Inc Cr 15,000
bank account to an
account to be used
for the business
10 Paid rent for period
of Oct 10 to end of
month, $1,600.
11 Purchased a truck for
$15,000, paying
$5,000 cash and
taking a bank loan
for the remainder.
13 Purchased equipment
on account.
14 Purchased supplies
for cash, $1,050.
14 Paid annual
premiums on
property insurance,
$750.
15 Received cash for job
completed, $3,100.
21 Paid creditor for

equipment purchased
on Oct 13, $3,500
1
Oct Transaction Accounts Type of Nature of Inc/ Dr/ Amount

(A, L, (Dr or
OE, R, Cr)
E)
24 Recorded job
completed on
account and sent
invoices to
customers, $5,100.
26 Received an invoice
for truck expenses, to
be paid in Nov, $280.
27 Paid utilities
expense, $1,205.
27 Paid miscellaneous
expenses, $180.
29 Received cash from

customer who owe
$2,420.
30 Paid salaries of
employees, $2,500.
31 Withdraw cash for

personal use, $1,000.
2
(b) Required:
Prepare the general journal entries to record all the business transactions. Use the template
provided below:
General Journal for Mandarin Designs

Date Particulars Debit ($) Credit ($)
Oct Cash at Bank 15,000
10
Capital, Hui Hui 15,000
Koh Hui Hui invested $15,000 into the business
10 1,600
1,600
Paid rent for the month
11 15,000
5,000
10,000
Bought a truck for $15,000, paid $5,000 cash and took a
bank loan for $10,000.
13 3,500
3,500
Purchased equipment on account
14 1,050
1,050
Purchases supplies using cash
14 750
750
Paid annual premiums on property
15 3,100
3,100
Received cash for job completed
21 3,500
3,500
Paid creditor for equipment purchased on 13 Oct
24 5,100
5,100
Invoiced customers for completed jobs
26 280
280
Received invoice for truck expense
3
Date Particulars Debit ($) Credit ($)

27 1,205
1,205
Paid utilities expense
27 180
180
Paid miscellaneous expense
29 2,420
2,420
Received cash from customers
30 2,500
2,500
Paid employees’ salaries
31 1,000
1,000
Withdrew cash for personal use
2. Continuation from Question 3 in Tutorial 3 (Warren, Problem 2-5B, p. 93)
Required:
Following from your answers in the analysis table, prepare the general journal entries to
record all business transactions.
General Journal for Lulu Icecream

S/No. Particulars Debit ($) Credit ($)
(a) Cash at Bank 20,000
Capital, Lulu Tan 20,000
Lulu invested $20,000 in the business
(b) 12,000
12,000
Received cash for sale of 6,000 teacups for $2 each
(c) 5,000
2,500
2,500
Purchased $5,000 of supplies, paying half upon delivery
and the other half on credit.
(e) 1,500
1,500
Received a bill for $1,500 from S’pore Power for August
to be paid next month.
4
(g) 5,000
5,000
Paid for advertising expense $5,000
(h) 6,000
6,000
Paid $6,000 for her home renovation
(i) 1,000
1,000
Paid $1,000 to supplier for amounts owed
(j) 600
600
Returned $600 worth of defective supplies and received
full credit for the cost.
(k) 20,000
20,000
Bought $20,000 of equipment needed to prepare the ice
cream
(m) 1,400
1,400
Cost of used supplies at the end of the month
5
Additional Question for Self-Practice
3. Joseph and Associates, a firm of real estate brokers, had the following transactions during the
first two weeks of April 20X1.
Apr
1 Joseph, the owner, paid into a separate bank account for use in the business $10,000
2 Purchased office equipment on credit from Designers Ltd 5,000
Received commission from the sale of a business office unit. 12,000
4 Paid for half month’s rental of a furnished office 1,000
6 Paid for utilities expense 600
Arranged a sale of an apartment unit; commission earned was $8,000 but 8,000
this amount would not be received until 12th April
8 Joseph contributed his own motor car worth $30,000 to the business as 30,000
additional capital
9 Paid salaries to staff 800
10 Paid the first instalment to Designers Ltd 2,500
12 Received the commission with respect to the unit sold on 6th April 8,000
13 Paid for repairs and fuel of car 250
15 Collected two weeks rental revenue from a florist shop to whom Joseph and 300
Associates sub-rented part of its office space
30 Full settlement of balance owing to Designers Ltd and received a discount
of $100
Required:
Record the above transactions in the General Journal of Joseph and Associates. Please use template
in next page.
(No journal narrations required)
6
General Journal- Joseph and Associates

Date Particulars Dr ($) Cr ($)
20X1
7

(Student’s Copy)
CLASSWORK
James started a music school in Tampines Mall two years ago. The school provides a variety of
music lessons to children. The school’s financial year ends on 31 December.
As at 1 January 20X1, the music school has the following balances in its ledger:
$
Music Equipment 40,000 Dr
Cash at bank 6,000 Cr
Creditors 9,000 Cr
Capital, James ?
During January 20X1, the following transactions occurred:
Jan 2 Collected $8,000 cash for January’s tuition fees. Another $4,000 of fees for January
were still owing by students.
4 Music school bought a new musical instrument costing $5,000. James paid $2,000
using his personal cheque and the balance was paid from the business’ bank account.
15 Paid January’s rental for music school $1,000.
30 Received a telephone bill of $300 to be paid in February 20X1.
31 Collect $4,000 cash from those students owing as at 2 January 20X1.
Required:
(a) Calculate the capital of the music school as at 1 January 20X1.
(b) Prepare general journal entries for the transactions in January 20X1.
(c) Explain the accounting principle applied in processing the transaction on 4 January 20X1.
8
Tutorial 5 Preparation of Trial Balance

(Student’s copy)
1. Refer to the journal entries in Tutorial 4 Qn 2, determine the balance in the Cash at Bank account
at the end of the month. (There is no need to prepare the Cash at Bank account.)
2. A trial balance gives a preliminary result of the business recording status before the final reports
are prepared. The types of errors in a manually prepare trial balance differ from those in a trial
balance generated by a computerised accounting system. How do these errors differ?
3. The trial balance for Thomson Brothers is shown below.
Thomson Brothers
Trial Balance as at 30 April 20X1
DR ($) CR ($)
Cash at bank 2,200
Debtors 8,200
Creditors 2,500
Capital, Thomson Brothers 5,000
Wages 900
Supplies 5,000
Telephone expense 800
Electricity expense 400
Rent expense 2,000
Total 19,500 19,500
The following errors were detected:

(i) $100 purchase of supplies on credit was not recorded in the accounting books.
(ii) Recorded $500 cash collection from debtor by crediting Cash at Bank and debiting
Debtors.
Required:
(a) Prepare the journal entries for correction of errors.
(b) Prepare the corrected trial balance as at 30 April 20X1.
1
4. The draft trial balance of Ronaldo Trading is shown below:
Trial Balance as at 31 December 20X1

DR ($) CR ($)
Cash at bank 16,500
Debtors 4,300
Furniture and equipment 10,800
Creditors 4,500
Capital, Ronaldo 21,200
Drawings, Ronaldo 1,000
Sales 22,500
Salary expenses 13,000
Advertising expenses 600
Utilities and telephone expenses 2,000
48,200 48,200
ALL ACCOUNTS IN THE LEDGER HAVE NORMAL BALANCES

(1) Ronaldo’s cash drawings of $500 was recorded by debiting the Cash at bank account and
crediting the Drawings, Ronaldo account.
(2) $650 cash was paid to a creditor. This transaction was not recorded in the accounting
books.
(3) $1,200 cash was paid for salary expenses. This transaction was recorded by debiting
Salary expenses account $2,100 and crediting Cash at bank account $2,100.
(4) $600 cash collected from sales was recorded by debiting Debtors account and crediting
Sales account.
Required
(a) Prepare general journal entries to correct the above errors.
(b) Prepare the corrected trial balance as at 31 December 20X1. (Show all workings)
2
Additional Questions for Self-Practice
Post the journal entries into the columnar format Cash at Bank account below:
Cash at bank
Balance
3
Refer to journal entries prepared in Tutorial 4 Question 1 (b), post the journal entries into
the general ledger in columnar format using the templates below:
Cash at bank
Balance
Capital, Hui Hui

Balance
Rent Expense
Balance
4
Truck
Balance
Bank Loan
Balance
Equipment
Balance
Accounts Payable
Balance
Supplies
Balance
5
Insurance Expense
Balance
Fees Revenue
Balance
Accounts Receivable
Balance
Truck Expense
Balance
Utilities Expense
Balance
6
Miscellaneous Expense
Balance
Salaries Expense
Balance
Drawings, Hui Hui

Balance
7. Using the ledger accounts prepared in Question 6 (Warren, Problem 2-3B, p. 92), prepare the
trial balance of Mandarin Designs as at 31 October.
8. Warren, Problem 2-4B, p. 92 - 93.
Do not follow the instructions in Warren for this question. Replace the account
“Prepaid Insurance” to “Insurance Expense” and “Fees Earned” to “Fees Revenue”.
(a) Prepare the journal entries to record all the business transactions. Narrations are not
required.
(b) Post the journal entries into the general ledger in columnar format. Use the templates in
the following pages. (Do note the opening balance for the respective accounts as at
1 December. i.e. the closing balances at end of November)
(c) Prepare the trial balance of Golden Realty as at 31 December.
7
Tutorial 5 Preparation of Trial Balance

(Student’s copy)
CLASSWORK
The draft trial balance of Shin Enterprise is shown below:
Trial Balance as at 31 May 20X1

DR ($) CR ($)
Cash at bank 5,347
Debtors 12,720
Creditors 8,337
Capital, Billy Wee 15,600
Drawings, Billy Wee 380
Commission revenue 7,250
Advertising expenses 1,700
Rent expenses 1,290
Telephone expenses 570
31,187 31,187
1. Commission received $250. The journal entry was Dr Cash at Bank for $250 and Cr Capital
account instead of Commission revenue account.
2. The purchase of office equipment on credit for $4,000 had been completely omitted from the
books.
3. A payment of $89 to a creditor was debited to Cash at bank account and credited to Creditor
account for the amount of $98.
Required:
(a) Prepare the journal entries for correction of errors.
(b) Prepare the corrected trial balance as at 31 May 20X1 using the template in page 9.
Bring this classwork and its

solutions to next tutorial class
8
Shin Enterprise
DR ($) CR ($)
Cash at bank
Debtors
Office equipment
Creditors
Capital, Billy Wee
Drawings, Billy Wee
Commission revenue
Salary expenses
Advertising expenses
Rent expenses
Telephone expenses
Total 35,000 35,000
9
Lecture 6 Preparation of Financial Statements

(Student’s copy)
Learning Objectives
• explain the importance of periodic profit determination.

• explain the accounting period concept and matching principle in relation to profit
determination.
• prepare the profit and loss statement and balance sheet of a service firm.
• distinguish between the profit and loss statement of a trading firm and that of a service
firm.
edition’, third edition, Singapore: Cengage Learning, Chapter 1 p.17 – 19

Edition, Pearson Longman Chapter 4 p.104 – 130 (exclude GST clearing entries),
Chapter 12 p.432 – 433
1. Importance of Periodic Profit Determination

• The primary aim of businesses is to make profits (though they can incur losses instead). The
calculation of such profits and losses is an important objective of the accounting function.
• Why is there a need for periodic profit determination?
 Indication of efficiency of enterprise
 Determination of profits available for distribution to owners
 Guide to decision-making
∗ Management (planning & control)
∗ Owners (investment plans)
 Satisfy legal requirements (taxation, Companies Act)
1
2. Accounting Concepts Underlying Profit Determination
Financial statements are prepared at the end of each accounting period
Accounting __________ Principle Continuity

Period Revenue Expenses (Going Concern)
of the same period to derive
____________
Profit is obtained by
________________________________ for the period
with the _____________________________ in earning
that revenue.
When is revenue generally recognised?

When the earning process of the revenue is completed (cash may or may not be received).
For a manufacturing firm, when is revenue recognised?

• Receive an order
• Purchase raw materials to produce the order
• Manufacture the product
• Deliver the product
• Receive cash
For a Service Firm (doctors, plumbers, For a Trading Firm

accountants, electricians, etc)
When the service _____________________ At point of __________________________
_________________ (legal obligation
________________________ binding on the purchaser such that the
organisation is more assured of receiving
payment)
How do you decide on the applicable accounting period for expenses?

Necessary to relate the expenses back to the revenue they helped earn. Once it is decided to
recognise revenue in a certain period, the expenses incurred in order to earn that revenue must
be recognised regardless of when they are paid.
Refer to KW p. 105-106 (excluding ‘Accrual accounting’).
2
3. Profit and Loss Statement and Balance Sheet of Service Firm
Classify trial balance items into:
Profit & Loss Statement/Income Statement – Revenue and Expense

Balance Sheet – Owners’ Equity, Assets, Liabilities
Definition of a Profit and Loss Statement Definition of a Balance Sheet

(Statement of Comprehensive Income) (Statement of Financial Position)
– See Warren, p. 17. – See Warren, p. 17.
Report detailing revenue and expenses for a a list of all the assets, liabilities and
period and the resultant profit and loss owner’s equity of an organization at a
particular point in time
(Net profit = Revenue – Expenses) Owners’ Equity = Assets - Liabilities
Company Name Company Name

Profit and Loss Statement Balance Sheet
For the year ended 30 June 20X1 As at 30 June 20X1
Revenue xxx Owners’ equity

Capital xxx
Less:Expenses Add: Net profit xxx
(list down) Less: Drawings (xxx)
xxx
xxx Represented by:
Assets
Net profit xxx (list down)
xxx
Less: Liabilities
(list down)
xxx
Net Assets xxx
Note: The narrative form in Warren, p. 18 follows A = L + OE.

For the purpose of our course, we will begin with the OE section, followed by the net
assets section (i.e. A – L)
3
Lecture Exercise 1: Alpha Repair Shop (refer to Lecture 5 p. 15)
Alpha Repair Shop

Dr ($) Cr ($)
Cash at bank 11,070
Capital, Adam 5,400
Drawings, Adam 50
Repair Fees Revenue 1,400
. Rental Expense 600
28,800 28,800
Alpha Repair Shop

Alpha Repair Shop Balance Sheet
Profit & Loss Statement as at 30 June 20X1
For the Month Ended 30 June 20X1
$ $ $
Repair Fees Revenue 1,400 Owner’s Equity
Less: Capital, Adam 5,400
Rental expense 600 Add : Net profit 800
Less: Drawings, Adam 50
Net profit 800 6,150
Represented by:
Assets
Cash at bank 11,070
Motor Vehicle 15,000 28,150
Less: Liabilities
Creditor, Neesun Motors 12,000 22,000
Net Assets 6,150
What is the link between the Profit and Loss

Statement and the Balance Sheet?
Ans.: The profit derived in the P&L Statement will
be transferred to the Owner’s equity section in the
Balance Sheet.
4
4. Profit and Loss Statement and Balance Sheet of TRADING firm

• Trading firms (also called merchandising firms) are mainly concerned with buying and
selling merchandise goods, also known as stocks or inventory.
• The purpose of preparing the Profit and Loss (P&L) Statement is to show how much
net profit (or loss) has been made by the business firm during a period. Refer to
Warren, p. 19.
• Includes the results from trading (i.e. gross profit or loss), other revenue and other
expense of the business operations.
• Gross profit (or loss) xxx

Add: Other revenue xx
xxx
Less: Other expenses xx
Net profit (or loss) xxx
• Lecture Illustration: Shop & Spent Minimart
Shop & Spent Minimart

Trial balance as at 31 December 20X1
DR $ CR $
Cash at bank 9,100
Debtors 4,000
Inventory 500
Furniture and fittings 5,000
Creditors 2,200
Capital, Sim 11,100
Interest revenue 200
Sales 9,500
Cost of Goods Sold 2,100
Rent Expense 400
Utilities Expense 600
Delivery van Expense 300
Total 23,000 23,000
5
• The revenues and expenses of trading firms are summarised and then reported in the
following:
 Trading Statement
 Profit and Loss Statement
Shop & Spent Minimart

Trading, Profit and Loss Statement for the year ended 31 December 20X1
$ $
Sales 9,500
Less:
Cost of goods sold (2,100) Trading
Gross Profit 7,400
Add: Other revenue

Interest revenue 200
7,600
Less: Expenses
Profit &
Rent expense 400
Loss
Salaries expense 1,000
Utilities expense 600
Delivery van expense 300 2,300
Net Profit 5,300
Glossary
Sales • Revenue earned from performing the trade (e.g. selling the goods)
Cost of Goods Sold (COGS) • Cost of inventories purchased include:
- the purchase price of goods bought from supplier
- any other costs incurred in bringing the goods into the location /
condition ready for sale. (e.g. freight inwards, customs duty, etc)
• When the inventories are sold, this cost of inventories becomes cost of
inventories sold i.e. Cost of Goods Sold (COGS)
Gross profit • Profit derived from the sale of goods (i.e. trading activities) alone,
before considering other revenue and expenses
• For definition, refer Warren, p. 192.
Gross profit = Sales – Cost of goods sold
6
The difference in the format of the Profit and Loss Statement … … (example)
SERVICE FIRM TRADING FIRM

ABC Consultants Shop & Spent Minimart
Profit and Loss Statement Trading, Profit and Loss Statement
for the year ended 31 Dec 20X1 for the year ended 31 Dec 20X1
$ $ $ $
Sales 9,500
2,100 Trading
Less: Cost of goods sold
Gross Profit 7,400
Revenue Add : Other revenue 200

Service fees revenue 18,000 Interest revenue 7,600
Interest revenue 200 18,200
Less : Expenses Less : Expenses P&L

Office expenses 900 Rent
400
Electricity 300 Salaries
1,000
Rent 8,000 Delivery van expense
300
Salaries 3,000 12,200 Utilities 600 2,300
Net profit 6,000 Net profit 5,300
• Only trading firms have the additional trading statement. The P&L statement for a service
firm is without the trading section.
• In practice, the term Profit and Loss Statement for a trading firm is understood to include the
trading statement.
7
Lecture Exercise 2: Poly Book Store
Poly Book Store operates in one of the polytechnics in Singapore. It sells textbooks, books,
stationery and snacks. It started with a capital contribution of $160,000. It generated $70,000 sales
but incurred a loss of $60,000 in its first year of operations.
The trial balance as at 31 December 20X1 is attached below.
Poly Bookstore
Trial Balance (extract) as at 31 December 20X1
Debit Credit
$ $
T Sales 140,000
T Sales returns 1,000
T Cost of goods sold 85,000
P/L Commission revenue 3,000
P/L Advertising 1,500
P/L Insurance 12,000
P/L Rent 24,000
P/L Utilities 3,600
P/L Sales staff salaries 26,400
P/L Office salaries 16,000
P/L Sundry expenses 6,600
P/L Bank charges 100
P/L Interest expense 800
Cash at bank 25,000
Inventories 20,000
Furniture & fittings 36,000
Accounts payable 8,000
Bank loan 10,000
Capital 100,000
Drawings 1,000
261,000 261,000
Prepare the Profit and Loss Statement

and Balance Sheet to assess the
operating performance and financial
position of the bookstore for the year
ended 31 December 20X1.
8
Poly Bookstore
Profit and Loss Statement for the year ended 31 December 20X1 (unclassified)
$ $ $
Sales 140,000
Less: Sales returns (1,000)
Net sales 139,000
Less: Cost of goods sold 85,000

Gross profit 54,000
Add: Other revenue

57,000
Less: Other expenses
Advertising 1,500
Insurance 12,000
Rent 24,000
Utilities 3,600
Sales staff salaries 26,400
Office salaries 16,000
Sundry expenses 6,600
Bank charges 100
Interest expense 800 91,000
Net loss (34,000)
How would you assess the performance of Poly Bookstore?
In its second year of operations, it is still incurring a loss.

Revenues are not sufficient to cover its operating expenses.
However, the net loss has declined from $60,000 to $34,000.
The business would need to generate more revenues in order to make a profit.
9
Poly Bookstore
Balance Sheet as at 31 December 20X1 (unclassified)
$ $
Owner’s equity
Capital 100,000
Add: Net loss (34,000)
Less: Drawings (1,000)
65,000
Represented by:
Assets
Cash at bank 25,000
Inventories 20,000
Furniture & Fittings 36,000 83,000
Less: Liabilities
Account payable 8,000
Bank loan 10,000 18,000
Net assets 65,000
How would you assess the financial position of Poly Bookstore?

Owner’s equity is further reduced due to the net loss incurred this year. Once the business is
profitable, owner’s equity should improve. Assets of $83,000 are much higher (4X) than liabilities
of $18,000. The business has sufficient cash to pay off its debts.
10
Online Learning
Lecture Exercise 3: Beta Dentist (continuation from lecture 5 p. 20)
Extract the balances from the ledger a/cs in Lecture 5
Beta Dentist
Trial balance as at 31 January 20X1
DR $ CR $
Cash at bank 9,100
Debtors 300
Office Equipment 5,000
Creditors 1,000
Capital, Dr. East 19,300
Drawings, Dr. East 600
Rental Expense 300
Total 26,300 26,300
Beta Dentist Beta Dentist

Profit & Loss Statement Balance Sheet as at 31 January 20X1
For the Month Ended 31 January 20X1
$ $
$ $
Owner’s Equity
Revenue Capital, Dr. East 19,300
Add : Net profit 4,700
Less: Expenses Less: Drawings, Dr. East 600
Rent Expense 300 23,400
Salaries Expense 1,000 1,300 Represented by:
Net Profit 4,700 Assets
Cash at bank 9,100
Debtors 300
Office Equipment 5,000 24,400
Less: Liabilities
Creditors 1,000
Net Assets 23,400
11
Tutorial 6 Preparation of Financial Statements

(Student’s copy)
(For week beginning 25 Jun 2018)
1. Explain the importance of the following concepts in the preparation of profit and loss
statements:
(a) the accounting period assumption
(b) the matching principle
2. For an airline company like Singapore Airlines, revenues are recognised when the passenger
(a) makes the reservation
(b) pays for the ticket
(c) takes the flight
Explain.
3. The following ledger balances are extracted from Jacob’s Plumbing Service on
31 March 20X1:
$ $
Motor vehicle 10,000 Rent expense 1,200
Tools and equipment 22,000 Salaries ( office ) 19,600
Furniture and fittings 8,000 Advertising 1,350
Cash at bank 4,500 Bank interest expense 500
Debtors 2,700 Telephone and postage 200
Creditors 1,800 Insurance on motor vehicle 800
Capital, Jacob 21,100 Shares in XYZ Ltd 8,000
Drawings, Jacob 3,200 Loan from bank 15,000
Fees revenue 45,000 ( repayable in Jan 20X4 )
Motor vehicle expenses 850
Note: The Motor vehicle is used for the performance of services.
Required:
Using the templates provided on page 3, prepare

- Profit and Loss Statement for the year ended 31 March 20X1;
- Balance Sheet as at 31 March 20X1.
1
4. Refer to Question 4 for Tutorial 5 – Ronaldo Trading
Use the corrected trial balance as at 31 December 20X1 (given below) to prepare the Profit
and Loss Statement for the year ended 31 December 20X1.
Ronaldo Trading
Corrected Trial Balance as at 31 December 20X1
Dr ($) Cr ($)
Cash at bank 16,350
Debtors 3,700
Furniture and equipment 10,800
Creditors 3,850
Capital, Ronaldo 21,200
Drawings, Ronaldo 2,000
Sales 22,500
Advertising expenses 600
Utilities and telephone expenses 2,000
47,550 47,550
Additional Question for Self-Practise
5. The following ledger balances are extracted from Basic Retailer on 31 December 20X1:
$ $
Sales 30,000 Insurance expense 800
Sales returns 600 Interest expense 300
Discount revenue 400 Sales salaries 5,000
Interest revenue 100 Office salaries 6,500
Advertising expense 500 Rental expense 2,000
Discount expense 100 Utilities expense 200
Cost of goods sold 10,800
Prepare the Trading, Profit and Loss Statement for the year ended 31 December for Basic
Retailer.
2
Question 3 Templates
Jacob’s Plumbing Service

Profit and Loss Statement for year ended 31 March 20X1
$ $ $
Revenue
Less: Expenses
24,500
Net Profit 20,500
Jacob’s Plumbing Service

Balance Sheet as at 31 March 20X1
$ $ $
Owner’s Equity
Capital, Jacob 21,100
Add: Net Profit
Less: Drawings, Jacob
38,400
Represented by:
Assets
Less: Liabilities
Net Assets 38,400
3
Tutorial 6 Preparation of Financial Statements

(Student’s copy)
(For week beginning 25 Jun 2018)
CLASSWORK
Refer to Classwork for Tutorial 5 – Shin Enterprise
Use the trial balance as at 31 May 20X1 (given below) to prepare the following:
(a) Present the profit and loss statement for the month ended 31 May 20X1.
(b) Present the balance sheet as at 31 May 20X1.
Note: Use templates given for profit and loss statement and balance sheet on page 5.
Shin Enterprise
Dr ($) Cr ($)
Cash at bank 5,160
Debtors 12,720
Creditors 12,150
Drawings, Billy Wee 380
Advertising expenses 1,700
Rent expenses 1,290
Telephone expenses 570
35,000 35,000
4
Classwork Templates
(a) Shin Enterprise

Profit & Loss Statement for the Month Ended 31 May 20X1
$ $
Revenue
Less: Expenses
Net Profit 1,990
(b) Shin Enterprise

Balance Sheet as at 31 May 20X1
$ $
Owner's Equity
Represented by:
Assets
29,110
Less: Liabilities
Net Assets 16,960

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Business Accounting

Lecture 1 Introduction to Accounting

(For week beginning 16 April 2018)

Reference Kirkwood, Ryan, Falt, Stanley – ‘Accounting: An Introductory Framework’, second

Is accounting the same as

2. Main Purposes of Accounting

3. Accounting Assumptions and Principles

• ____________________________ (Lecture 6 – Preparation of Financial Statements)

Lecture Exercise Do you agree? State the relevant accounting concepts.

Since accounting is all about providing financial information to

(refer to KW p. 482 – 483)

4. Users of Financial Information

5. The Nature of Business & Types of Ownership

5.1 Nature of the business

- E.g.: Computer hardware manufacturer, household products manufacturer

5.2 The types of ownership

In BA, we will be covering sole proprietorships and companies.

Tutorial 1 Introduction to Accounting

(For week beginning 23 Apr 2018)

2. What are accounting concepts and why are they important?

4. (a) Briefly explain the accounting period concept.

The firm prepares financial Beginning of End of accounting

(2) Quarterly 30 June 2018

(3) Half-yearly 1 July 2017

(4) Yearly 1 October 2017

5. For each of the following situations,

3. After starting the business in February 2009, a coal-mining business prepares no

7. A construction firm signs a two-year contract to build an expressway. The firm

Additional Questions for Self-Practice

6. Discuss the needs of the following users of financial reports:

Tutorial 1 Introduction to Accounting

(For week beginning 23 Apr 2018)

Lecture 2 Application of Accounting Equation

(For week beginning 23 Apr 2018)

Reference Kirkwood, Ryan, Falt, Stanley – ‘Accounting: An Introductory Framework’, second

1. The Accounting Equation

External Parties Owner

ASSETS = LIABILITIES + OWNER’S EQUITY

Assets - items of value owned by a business.

Liabilities - amounts owed by a business to external parties.

Owner’s equity - amount of the owner’s interest or investment in the business.

Exercise: Identifying assets ( A ), liabilities ( L ) and owner’s equity ( OE )

Classify the following items as assets ( A ), liabilities ( L ) or owner’s equity ( OE ).

a Office equipment A g Accounts receivable A

• accounts payable - amounts owing by business to suppliers of goods or services

ASSETS = LIABILITIES + OWNER’S EQUITY

The relationship between A, L and OE of a business at a certain date is always an equality.

Exercise: Application of the accounting equation: A = L + OE

2. The Balance Sheet

Net Assets ( A - L ) 10,000

Note: The narrative form in Warren p. 18 follows A - L = OE.

3. Effects of Transactions on Accounting Equation / Balance Sheet

Just like every coin

Chris Chee begins a business that will be known as Internet Solutions.

Analysis of effects of transactions on accounting equation:

What is the effect of the following transactions on the accounting equation?

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash + $1,000 Profit + $1,000 (Fees revenue)

4. Revenue and Expense

ASSETS = LIABILITIES + OWNER’S EQUITY

Example: Warren, p. 13 – 14 (cont’d)

Analysis of effects of transactions on accounting equation:

20X1 Cash at + Land + Supplies Accounts Capital, + Profit - Drawings

Net Assets 26,850