BKAL1013

BUSINESS ACCOUNTING
 SYLLABUS CONTENT
 ACCOUNTING ENVIRONMENT
 ACCOUNTING CONCEPT & PRACTICE
 THE RECORDING PROCESS
 COMPLETING THE ACCOUNTING CYCLE
 ACCOUNTING FOR MERCHANDISING BUSINESSES
 COMPANIES ANNUAL REPORT
 FINANCIAL STATEMENT ANALYSIS
 MANAGERIAL ACCOUNTING
 COST VOLUME PROFIT ANALYSIS (CVP)
 BUDGETING AS A TOOL FOR PLANNING &
CONTROLLING
 VARIANCE ANALYSIS & STANDARD COSTING
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 4. COMPLETING THE
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ACCOUNTING CYCLE

 Adjusting entries
 Preparing the adjusted trial balance
 Closing entries
 Preparing the financial statement
 Statement of Profit or Loss and Other
Comprehensive Income
 Statement of Owner’s Equity
 Statement of Financial Position

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THE ACCOUNTING CYLE

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 THE ADJUSTING ENTRIES 5

 Adjusting entries are journal entries that are typically

required to be prepared at the end of accounting
period to adjust the amount or balance of certain
items or accounts.
 Common examples of items or accounts that required
to be adjusted are depreciation of assets, accrued
expenses, or unearned revenue.

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 ACCRUAL vs. CASH-BASIS
ACCOUNTING

revenue and expenses are

Accrual recognized at the time they
take place, and not at the
time they are actually paid.

revenue is recorded when cash

Cash-basis is received, and expenses are
recorded when cash is paid.

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 RECOGNISITION OF REVENUE &
EXPENSES

REVENUE revenue be recognized in the

RECOGNITION accounting period in which it
PRINCIPLE is earned.

efforts (expenses) be matched

THE MATCHING with accomplishments
PRINCIPLE
(revenues).

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 THE BASICS OF ADJUSTING 8

ENTRIES

 Adjusting entries are prepared to update the

balance of particular accounts to its latest or
correct balance at the end of accounting year.
 Basically, there are two broad categories of items
that require to be adjusted that are prepayments
and accruals.

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TYPES OF ADJUSTING
ENTRIES

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 JOURNALISE AND POST THE
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ADJUSTING ENTRIES TO THE
LEDGER

 Four types of items/accounts that required to be

adjusted:
 prepaid expenses,
 unearned revenues,
 accrued revenues, and
 accrued expenses

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 JOURNALISE AND POST THE
ADJUSTING ENTRIES TO THE 11

LEDGER
 Prepaid expenses
 Expenses that have been paid in advance by a company to other
party.
 Prior to adjustment the value of
assets are overstated and
expenses are understated.
 The adjusting entry results in debit to an expense account and
credit to an asset account.
 Examples of prepaid expenses are cash paid by a company for
insurance premiums, or rental paid prior to receiving services
from the other party (seller).

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Prepaid expenses Expenses Account Debit
  Assets Account Credit
Example:
Insurance premium of RM600 out of RM1,200 paid several months ago
has just expired this month.
Entry when the insurance premium was paid:
Dr. Prepaid insurance 600
Cr. Cash 600
 
Adjusting entry:
Dr. Insurance expense 600
Cr. Prepaid insurance 600

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 JOURNALISE AND POST THE
ADJUSTING ENTRIES TO THE 13

LEDGER
 Unearned revenues
 Revenue that has been collected in advance from customer prior
to rendering services to the customers.
 Prior to adjustment the value of
assets are overstated and
revenues are understated.
 The adjusting entry results in debit to a liability account and
credit to a revenue account.
 Examples of unearned revenues are cash collected for magazine
subscription, hotel room or flight booking payment and rental
prior to rendering services to the clients.

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Unearned revenues Liability Account Debit
  Revenue Account Credit
Example:
Service relating to fee of RM500 (out of the advance payment of RM1,500
made by customers last month) have been rendered to the customers.

Entry when recording payment by customer:

Dr. Cash 1,500
Cr. Unearned service revenue 1,500
 
Adjusting entry:
Dr. Unearned service revenue 500
Cr. Service revenue 500

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 JOURNALISE AND POST THE
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ADJUSTING ENTRIES TO THE
LEDGER
 Accrued revenues
 Revenues that have been earned as services had been
performed to the customers but not recorded or bill yet.
 Prior to adjustment the balance of affected accounts (assets
and revenues) are understated.
 In order to adjust the affected accounts, an asset account
needs to be debited while a revenue account shall be credited.
 Examples of accrued revenues are fees receivable and rent
receivable.

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Accrued revenues Assets Account Debit

  Revenue Account Credit

Example:
Service revenue earned but unbilled on 31 December 2016 is RM2,700.

Dr. Account receivable 2,700

Cr. Revenue 2,700

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 JOURNALISE AND POST THE
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ADJUSTING ENTRIES TO THE
LEDGER
 Accrued expenses
 Expenses that are already incurred but yet to be paid.
 Prior to adjustment the balance of affected accounts (liability
and expense) are understated.
 In order to adjust the affected accounts, an expense account
needs to be debited while a liability account shall be credited.
 Example of accrued expenses is salary and rent payable.

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Accrued expenses Expense Account Debit

  Liability Account Credit

Example:
Rent for December 2016 was RM650 but not paid and recorded yet.

Dr. Rent expense 650

Cr. Rent payable 650

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 THE ADJUSTING TRIAL 19

BALANCE
 Is prepared after all adjusting entries have been
journalized and posted. T
 he purpose of preparing the adjusted trial balance is
to prove the equality of the total debit and credit
balances in the ledger after all adjustments have
been made.
 Financial statements could be prepared directly
from the adjusted trial balance.

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 THE CLOSING 20

ENTRIES
 For the purpose of preparing the closing entries accounts are
classified into two categories:
 temporary accounts; and
Temporary accounts consist of revenues, expenses as well
as drawings account.
 permanent accounts
Permanent accounts comprise of assets, liabilities
and equity accounts.
 Closing entries are prepared by transferring balance of all
temporary accounts to the owner’s capital account.

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THE STEPS OF CLOSING 21

ENTRIES

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 JOURNALIZED THE CLOSING 22

ENTRIES
  Accounts Journal entry
1 Revenues Dr. Revenue Account
Cr. Income Summary
2 Expenses Dr. Income Summary
Cr. Expense Account
3 Income Summary - Dr. Income Summary
Profit Cr. Owner’s Capital
 
Income Summary - Dr. Owner’s Capital
Loss Cr. Income Summary
4 Drawings Dr. Owner’s Capital
Cr. Drawings Account
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PREPARING THE FINANCIAL 23

STATEMENTS

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PREPARING THE FINANCIAL 24

STATEMENTS

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POP QUIZ:
1. An account that still has balance after closing
entries have been journalized and posted is:
 
A. Service Revenue
B. Advertising expense
C. Prepaid Insurance
D. Depreciation expense
 
 2. Which types of accounts will appear in the post-
closing trial balance?
 
A. Accrued expenses
B. Unearned revenue
C. Accumulated depreciation
D. All of the above
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STRUCTURED QUESTION:
Syomio Enterprise provides health and beauty consultation services. The
company is located in Klang Valley. The following are unadjusted accounts
balances for the financial year ended 31 December 2016:

Account RM
Cash 44,470
Account receivable 103,770
Office supplies 10,800
Prepaid utilities 21,700
Prepaid insurance 16,800
Office equipment 69, 360
Accumulated depreciation- Office
equipment 8,800
Unearned revenue 59,700
Capital 155,600
Service revenue 81,360
Salary expense 38,560
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STRUCTURED QUESTION:
Additional information:
 
 Supplies on hand at 31 December 2016 was RM5,800.
 Prepaid insurance represented premiums for policy purchased on 1 July
2016 for a period of one year.
 Annual depreciation of office equipment was RM3,600.
 Utilities expense amounted to RM11,700.
 Rent expense was RM6,000. It has not yet been recorded and will only be
paid in January 2017.
 Unearned revenue on 31 December 2016 was RM29,700.
 
Required:
 
 Prepare the relevant adjusting journal entries.
 Prepare the adjusted trial balance as at 31 December 2016.
 Prepare (i) Statement of profit or loss (ii) Statement of changes in Owner's
Equity

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