Lecture Note

3
Recording, Handling & Summarizing

Accounting Data
Learning Outcomes
After studying this chapter, you should be able to:

 Define the accounting equation
 Explain the terms asset, liability and owner’s equity
 List the components of an owner’s equity and
explain the effects of these components on the
owner’s equity
 Use the accounting equation to analyze business
transactions
Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2018 3–3
Learning Outcomes (cont.)
 Explain the meaning and purpose of preparing the

Statement of Profit or Loss and Other
Comprehensive Income and the Statement of
Financial Position
 Briefly explain the purpose of preparing both the
Statement of Changes in Equity and the Statement
of Cash Flows

Recording Process
Statement of Profit
and Loss
Statement of Financial
Position/ Balance
Sheet
Bookkeeping vs Accounting
 Bookkeeping and accounting are both important

parts of managing your finances. At first glance,
the two can seem quite similar, but there are a
few main differences.
 Bookkeeping focuses on recording and
organizing financial data. Accounting is the
interpretation and presentation of that data to
business owners and investors.

 Bookkeeping typically consists of:
 payroll
 invoicing
 receipts and bills
 recording business transactions.

 Accounting typically consists of:
 financial statements and reports
 budgets
 tax returns
 analyzing business performance.
 - The tasks that bookkeepers and accountants do vary
between businesses. Bookkeepers working for smaller
businesses might do some basic accounting duties.
There’s often overlap, and the duties may change a lot
from one business to another.
Introduction To Double Entry
 The double entry system is based on the duality

concept. What is duality concept?
 Is the underlying basis for double entry
accounting system. The dual aspect concept
states that every business transaction requires
recordation in two different accounts.(receiving
& giving benefit)
 -These items referred to assets, liabilities,
equity, revenue and expenses.

Asset
 Asset are properties used to help to operate the

business.

Tangible Asset
Asset that has a material / physical form-anything

can be touched.
a) Fixed Asset-asset life is more than 1 year. It can
be used repeatedly.
eg: machine, equipment, premise, furniture
b)Current asset- can be easily converted into cash.
eg: cash, debtors, bank, stock

Intangible Asset
 Intangible asset is an asset that is not physical

in nature.
 It’s a corporate intellectual properties.
 eg:patent, trademark, copyright

Liabilities
 Liabilities are debts owed by the business to

external parties. eg: suppliers or creditors

Liabilities
 It can divided into:

a) Current liabilities- debts that must be paid off
within 1 year.
eg: creditors, bank overdraft,
 b) Long term liabilities-debts that must be paid
more than1 year.
eg. bank loan, mortgage.

Owner Equity
 a) Capital - amount contributed by the owner to

the business in the form of either cash or other
assets plus the retained earnings or profits.
- It can be in term of cash or assets
 b) Drawings – cash/ goods/ assets taken by
owner for personal use.
- It will reduce the owner equity

4. Revenues / sale / income
-revenues are income earned by the business resulting from
the sale of goods(sales), fees and commissions, rental
income, interest received and royalties.
-Revenues earned will results in an increase in owner’s
equity.
5. Expenses
-expenses are cost incurred by the business for assets
bought or payment of services used.
-eg: rent, salary, electricity & water bill, stationaries

Source of Document
 Invoice-a list of goods sent or services provided,

with a statement of the sum due for these.( a bill)-
given by the seller to the buyer
 Delivery order-issued by the seller when the seller
delivers the goods to the buyer’s premises.
 Purchase order-the buyer issues this document to
request goods.
 Debit Note-Issued by the business(customers)
when goods are returned to a supplier.

 Credit note-Issued by the business(supplier)
upon the receipt of goods returned by a
dissatisfied customer.
 Cheque book-usually firm make payments by
cheque.
 Receipts-Issued by the business as
acknowledgement of receipts of cash.

The Accounting Equation
 Total of assets will always equal to total of

liabilities and owner equity.

Illustration
 A sole trader started a business by investing

RM50,000 cash in the business. The
contribution of cash becomes the capital and
now belongs to the business. Therefore:

 In order to expand the business, the owner
obtained a bank loan from a local bank of
RM40,000. The loan taken from the bank is
considered as the business liability. Hence,

An Account
 An account is an individual record or form to

record and summarize information for each
asset, liability, or owner’s equity transaction.
Each account will have a title and number.
 Debit=means left side.
 Credit=means right side

The Principle Of Double Entry
 The double entry system is based on the rule

that every debit entry must have a credit entry.
 The effect of the double entry system on the
account can be shown as follow:
Asset Account Liability Account
Debit Credit Debit Credit

Increase(+) Decrease(-) Decrease(-) Increase(+)

The Journal
What is journal?
 A journal provides a complete chronological (day to
day) record of all transaction.

 The main reason of using the journal are:
1. The purchase and sale of fixed assets on credit.

2. Writing off bad debts.
3. The correction of errors in the ledger accounts.
4. Opening entries-entries for a new set of books.
5. Adjustment to entries in the ledger.

Example

Books of Original Entry
Sales Journal for credit sales
Purchase
for credit purchases
Journal
Return Inwards for goods returned by

Books of Journal dissatisfied customers.
original
entry
Return for goods returned by
Outwards the business to suppliers.
Journal
.
for other transaction
General
Journal
for cash receipt or

Cash Book
payment
Journal Layout

Journal Layout

Illustration
Ikhmal starts business by investing RM60,000 in cash

on 1st July 2016.
Answer:


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3

Recording, Handling & Summarizing

After studying this chapter, you should be able to:

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Explain the meaning and purpose of preparing the

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Bookkeeping and accounting are both important

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 The double entry system is based on the duality

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Asset are properties used to help to operate the

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Asset that has a material / physical form-anything

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Intangible asset is an asset that is not physical

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Liabilities are debts owed by the business to

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 It can divided into:

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 a) Capital - amount contributed by the owner to

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Invoice-a list of goods sent or services provided,

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 Total of assets will always equal to total of

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 A sole trader started a business by investing

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 An account is an individual record or form to

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

 The double entry system is based on the rule

Debit Credit Debit Credit

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

day) record of all transaction.

1. The purchase and sale of fixed assets on credit.

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Return Inwards for goods returned by

for cash receipt or

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

Ikhmal starts business by investing RM60,000 in cash

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

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