The Acc

Document Sample
The Acc Powered By Docstoc
					Week 2     Lecture 4

The Accounting Cycle
        The Accounting Cycle
Source Document        Journal

Trial Balance          Ledger

Financial Statements
                Transactions
 Typesof transactions
  External transactions
      Eg.   Purchase of office supplies, etc
  Internal    transactions
         Use of office supplies by the entity’s
      Eg.
      employees
  Non-transaction       events
      Eg.Receiving    of an order from a
      customers
 Transactions     of a business entity
               Source documents
   Provides written evidence of a transaction
     Serves to control the entity’s resources
     tax invoice

     purchase order

     cash register tapes

     credit card slips

     Etc
                      Journals
   Books of first or original entry



   7 types of journals
           Cash receipts Journal
   Records the receipts of cash and cheques from
    all sources
   Source documents used:
     Cash register tapes
     Duplicate copy of cash sales docket

     Duplicate copy of receipts issued

     Bank statements (direct deposits made by
      customers)
         Cash payments Journal
   Records payments made by cash or cheque for
    all purposes

   Source documents
     Cheque butt
     Bank Statements

     Copy of Receipts received
                     Sales Journal
   Records goods or services sold on credit
   Does on include sales of fixed assets on credit

   Source document
       Duplicate of sales invoice or tax invoice issued
                 Purchase Journal
   Records goods purchased on credit for resale
   It does not include purchase of fixed assets on
    credit or any items used in the business to
    generate revenue

   Source document
       Original copy of purchase invoice received
            Sales returns journal
   Records goods that have been sold and later
    returned by the customer due to the following
    reasons:
     Goods may have been unsatisfactory
     Damaged or faulty

     Goods were not what was ordered

     Goods did not meet the required standards

    Source document:- duplicate copy of credit note
      issued
        Purchase returns Journal
   Records goods that were bought by the business
    but were later returned to the supplier due to:
     Goods may have been unsatisfactory
     Damaged or faulty

     Goods were not what was ordered

     Goods did not meet the required standards

     Source document:- original copy of credit note
      received
                   General journal
   Records all miscellaneous transactions which
    can not be recorded in any other specialised
    journal
   Recording transactions in a journal
       Analyse transaction
           determine ledger accounts affected
           determine effect on each account
       At least 2 accounts are always affected
       Debits must always equal credits
       Equality of accounting equation maintained
       Journals – General Journal
Date    Particulars/    Dr     Cr
        Explanation     $      $
              Accounting Rules
   Assets
     Examples cash, stock, accounts receivable, land &
      buildings, etc
     Increases                  Dr
     Decreases                  Cr
                  Accounting Rules
   Liabilities
     Examples accounts payable, loan, mortgage, wages
      payable, etc
     Increases                 Cr
     Decreases                 Dr
             Accounting Rules
   Equity/ Capital
     Increases        Cr
     Decreases        Dr
               Accounting Rules
   Revenues
     Sales, commission received, Service fees, rent
      revenue, etc
     Increases                  Cr
     Decreases                  Dr
               Accounting Rules
   Expenses
     Examples wages and salaries, rent expense,
      telephone expense, etc
     Increases                 Dr
     Decreases                 Cr
        Double entry Accounting
               Principle
   When accounts are used in the accounting
    process, each transaction must also be analysed
    to determine what accounts are affected, the
    nature of account (A, L, P, R or E) and whether
    each account is increased or decreased so as to
    decided whether it is to be debited or credited.
     Double entry Accounting
            Principle


That for every Debit entry there should
 be a corresponding Credit entry
***At least two accounts are affected
 by each transaction.***
Three basic parts
 •   title
 •   place for recording increases
 •   place for recording decreases
                        Account Title
Date Explanation Amount Date Explanation Amount


      Debit (Dr) side                   Credit (Cr) side
                             Cash at Bank
Date   Explanation           Debit    Date   Explanation          Credit
2009                                  2009
2/1    D Jones, Capital      35 000   3/1     Vehicle             21 000
20/1   Gardening revenue      2 200   22/1    Equipment            9 000
31/1   Accounts receivable      550   31/1    Wages expense          450
                                      31/1    Accounts payable     2 500
                                      31/1    D Jones, Drawings      200
                                              balance c/d          4 600
                             37 750                               37 750
       Balance b/d            4 600
ACCOUNT Cash at Bank                           Account No. 100
                               Post
 Date    Explanation           Ref.   Debit    Credit Balance
 2009
Jan. 2   D Jones, Capital      200    35 000            35 000
     3   Vehicle               350             21 000   14 000
     3   Garden Equipment      351              9 000    5 000
    20   Garden Revenue        400     2 200             7 200
    22   Wages Expense         500               450     6 750
    31   Accounts Receivable   301      550              7 300
    31   Accounts Payable      100              2 500    4 800
    31   D Jones, Drawings     201                200    4 600
   Balance Sheet
     Asset accounts (eg. cash at bank)
     Liability accounts (eg. accounts payable)

     Equity accounts (capital)

   Income Statement
     Income (eg. rent received)
     Expenses (eg. employee wages)
   Collection of all the individual accounts
   Organised in the order of appearance
   Specific ID number
   Chart Complete listing of ledger account titles
    and ID numbers
   Reference point
   Will reveal:
     Nature of the organisation
     Nature of activity

     Types of income & expenses, assets, liabilities and
      equity
                       Increases
Account                recorded on Normal
                                   balance

Assets                 Debit side     Debit
Liabilities            Credit side    Credit
Equity
  Investment in entity Credit side    Credit
  Drawings from entity Debit side     Debit
  Income: Revenues     Credit side    Credit
  Expenses             Debit side     Debit
   Lists all ledger accounts and their balances
   Debits in one column, credits in another
   Can be prepared at any time to test equality of
    debits and credits
   Limitations
       May balance and still contain errors
   Error detected before posting
       Cross out with single line and insert correct amount
   Error detected after posting
       Must be corrected with another entry
   Never erase!
How to enter transactions in the basic ledger
 accounts and balancing it.
               Effects of transactions on the Ledger
                             Accounts
Example
2009
January1 Jone commenced business with
      $10000 cash on January 1st 2009.
       12 Bought stock or goods for
      $3000 cash
Transactions




      15    Sold goods on credit $2000
      19    Jone took $500 for own use
      31    Paid electricity bill $100
      31    Bought goods on credit for $500
Recording Transactions in the basic
         ledger accounts
Required:
Enter the transactions into the ledger accounts and
 balance it.
                                Cash

2009                                   2009
Jan 1         Capital   10000          Jan 1          Stock           3000
                                                      Drawings          500
                                       Jan 19
                                       Jan 31          Electricity     100

                                               Balance c/d            6400
                        10000
                                                                     10000
        Balance b/d     6400
Capital

          2009    Cash   10000
          Jan 1
                                      Stock

 2009                          3000            2009    Balance c/d   3500
             Cash                             Jan 31
Jan 12
 Jan 31     Accounts Payable    500




                               3500                                  3500

 2009                          3500
Jan 31    Balance b/d
                 Accounts receivable

 2009
Jan 15   Sales    2000
Sales

         2009    Accounts Receivable   2000
        Jan 15
                  Drawings

 2009
Jan 19   Cash   500
                  Electricity

 2009
Jan 31   Cash   100
Accounts Payable

              2009
             Jan 31   Stock   500
             Trial Balance of Jone
             As At 31st January 2009
Cash                  $6400   Capital            $10000
Stock                 3500    Accounts Payable      500
Accounts Receivable   2000     Sales              2000
Drawings              500
Electricity expense   100
                      12500                      12500