ACCOUNTING FOR BUSINESS

WEEK 2
BUSINESS TRANSACTION

UNIVERSITAS BINA NUSANTARA

SUBJECT MATTER EXPERT

MARIA PARAMASTRI HAYUNING ADI, S.E., M.Sc,
CertDA
 LEARNING OUTCOME

 LO1: Explain the accounting concept and principle, the role of accounting information in business and business
structure

 LO2: Apply the step for preparing financial reports, consisting of statement of financial position, statement of
profit or loss, statement of change in equity and statement of cash flow and analysis of financial statements
 These slides have been adapted from:

Birt, J., K. Chalmers., S. Maloney., A. Brooks., J. Oliver., D. Bond. (2020). Accounting: Business Reporting for Decision Making. 7th
Edition. Australia: John Wiley & Sons Ltd. ISBN: 9780730369295.

Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition. Hoboken: John Wiley & Sons Inc.
ISBN: 9781119503408

Acknowledgement
UNIVERSITAS BINA NUSANTARA

Juni 2023
BUSINESS TRANSACTION
OUTLINE

RECOGNISING BUSINESS TRANSACTIONS

THE ACCOUNTING EQUATION

ANALYSIS OF BUSINESS TRANSACTION

JOURNALS AND LEDGER ACCOUNTS

THE TRIAL BALANCE

ACCOUNTING ERROR
RECOGNISING BUSINESS TRANSACTIONS

• Business transactions are occurrences that affect the assets, liabilities and equity items in an entity.

• A business transaction is recorded when:

• it can be reliably measured in monetary terms

• it occurs at arm’s length.

• Under the entity concept, every entity must keep records of its business transactions separate from any personal
transactions of the owners.

• Example of business transaction

- Contribution of capital by owners - Sale goods to customer
- Payment of wages - Provision of services to client
- Receipt bank interest - Repayment short – term loan
- Payment of account payable - Cash purchase of office supplies
- Depreciating office equipment - Payment of advertising
THE ACCOUNTING EQUATION

ASSETS = LIABILITIES + EQUITY

A = L + E

• Assets = resources controlled by entity. Example : Cash, Account Receivable, Supplies,

Equipment, Prepaid Insurance

• Liabilities = external sources of funds. Example : Account Payable, Notes Payable, Bond Payable
• Equity = internal sources of funds (from owners). Example : Share Capital – Ordinary, Owner’s
Capital

• Assets need to be funded by owners and lenders; the liabilities and equity represent the claims
against the entities assets.
 THE ACCOUNTING EQUATION

• Example:
• Valerie’s Vases needs $350 000 of assets to do business. Valerie only has $200 000 to contribute as
equity; therefore her business needs to borrow additional funds of $150 000 from a bank which will
become a liability of the business.
A = L + E
$350,000 = $150,000 + $200,000

• The concept of duality:

• The accounting equation must be kept in balance after a transaction is entered.
• i.e. Assets MUST = Liabilities + Equity
• In order to keep the equation in balance, a transaction must be recorded at least twice.
• A transaction has a dual effect on the equation:
• cash movement effect
• category of transaction effect.
 THE ACCOUNTING EQUATION

• The concept of duality:

• Cash movement:
• money paid or received (cash account)
• money going to be paid or received (accounts payable/receivable).

• Category of the transaction:

• What is the nature of the transaction?
• Purchase an asset = asset account
• Receipt of money from sale = revenue account

• The purchase of a delivery truck via a loan.

A = L + E
• Cash effect — loan payable (liability):  Truck =  Loan
• payment will be made in the future.
• Category effect — motor vehicle (asset):
• this is the purchase of a delivery truck to support the business while the business generates revenue.
 THE EXPANDED ACCOUNTING EQUATION

• The expanded accounting equation:

• income produces an increase in equity
• expenses result in decreases in equity.
• Therefore:
• profit (loss) is added to (subtracted from) opening equity on the statement of financial position.
ASSETS = LIABILITIES + EQUITY + INCOME – EXPENSES

• Example 1 — capital contribution:

• Owner contributes $20 000 in cash to start a business:
1. Key words ‘cash’ and ‘owner’.
2. Cash increases $20 000 (asset).
3. Owner increases capital (equity).

4.
 ANALYSIS OF BUSINESS TRANSACTION

• Example 2 — purchase of an asset with cash:

• Firm purchases new iPad for $500 and pays by cash:
1. Key words ‘cash’ and ‘iPad’.
2. Cash decreases $500 (asset).
3. New iPad purchased $500 (asset).
• Example 3 — income earned:
• BCS sends an invoice to Tassie Tennis for providing tennis coaching services totalling $3000
1. Key words ‘invoice’, ‘services’
2. Accounts receivables (AR) increases $3000 (asset)
3. Fees revenue increases $3000 (income)
ACCOUNTING WORKSHEET

Then the individual columns

Summarises the duality All business transactions of of the worksheet can be
associated with each business the entity can be entered into totalled and used as the basis
transaction. the worksheet. for preparing financial
statements.
JOURNALS AND LEDGER ACCOUNTS
THE JOURNAL

• The journal:
• A journal is an accounting record in which transactions are initially recorded in chronological
order.
• The journal entry will consist of:
• the transaction date
• the name of the two accounts affected by the transaction
• whether each account is debited or credited.
 JOURNALS AND LEDGER ACCOUNTS
THE JOURNAL

• Journalizing
Assume: On September 1, Softbyte SA shareholders invested €15,000 cash in the corporation in
exchange for ordinary shares, and Softbyte purchased computer equipment for €7,000 cash.

Demonstrate: How do you enter the transaction data in the journal?

JOURNALS AND LEDGER ACCOUNTS
THE JOURNAL
 JOURNALS AND LEDGER ACCOUNT
THE LEDGER

• The ledger:
• A ledger is an account that accumulates all the information about changes in specific account
balances.
• A ledger can be used in place of a journal.
• Each ledger account will have:
• a debit (left side)
• a credit (right side).
• The expanded accounting equation:
Assets = Liabilities + Equity + Revenue – Expenses
• Moving expenses to the other side:
Assets + Expenses = Liabilities + Equity + Revenue
 JOURNALS AND LEDGER ACCOUNT
THE LEDGER

• Debits and credits example:

• This is the cash ledger (a debit account).
• Entries as per journals, drs = crs, drs – crs = closing balance.

• Another ledger example (posting process)

 JOURNALS AND LEDGER ACCOUNT
CHART OF ACCOUNT

• Chart of accounts:
• A chart of accounts is a listing of the ledger account titles and their related numbers and/or alpha numbers.
• Maintained in either or both a manual or computerised system like MYOB or QuickBooks.
• Should have flexibility to cater for expansion of accounts as the business grows.
THE TRIAL BALANCE

• The trial balance is a list of ledger account balances that is prepared at the end of the
period.

• The purpose of the trial balance is to:

• assist in the preparation of the financial statements

• check the accuracy of the ledger or journal entries.

JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
JOURNAL AND TRIAL BALANCE PROCESS
ADDITIONAL EXAMPLE
 ACCOUNTING ERROR

1. Single entry error:

• Concept of duality must be applied to every transaction.
• Worksheet will not balance if only one part of transaction is entered.
2. Transposition error:
• Occurs when 2 of the digits are transposed:
• e.g. payment of $5340 cash is recorded as $5430 decrease in profit: difference of $90.
• A transposition error is always divisible by 9.
3. Incorrect entry:
• Recording 2 increases or 2 decreases on one side.
• Or, recording an increase to one side and a decrease to the other side.
• E.g. owner withdraws cash of $3000 and records the transaction as an increase in cash and a
decrease in equity. Asset side will be $6000 higher than claims side.
REFERENCES

• Birt, J., K. Chalmers., S. Maloney., A. Brooks., J. Oliver., D. Bond. (2020). Accounting: Business
Reporting for Decision Making. 7th Edition. Australia: John Wiley & Sons Ltd. ISBN: 9780730369295.

• Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition.
Hoboken: John Wiley & Sons Inc. ISBN: 9781119503408
THANK YOU
BUSINESS TRANSACTION
UNIVERSITAS BINA NUSANTARA