FUNDAMENTALS OF ACCOUNTING

Transcription

1 FUNDAMENTALS OF ACCOUNTING

2 CHAPTER 2 ACCOUNTING BOOKS

3 2.0-ACCOUNTIN G CYCLE 3

4 ACCOUNTING CYCLE THE PROCESS OF RECORDING BUSINESS TRANSACTIONS. THIS CYCLE INVOLVES SEVERAL STAGES OVER A PARTICULAR PERIOD OF TIME. IT SHOWS THE STEPS OF COLLECT AND RECORD BUSINESS INFOATION SYSTEMATICALLY.

5 STEPS IN THE ACCOUNTING CYCLE Step 1: The type of transaction is identified based on the source document. Step 2: The information or transactions are recorded into a suitable Book of First Entry or Journal. Step 3: Journal entries are posted to the correct account in the ledger book.

6 All accounts in the ledger are balanced. The balance of each account is identified. Step 4: A trial balance is prepared to check the accuracy of the account entries in the ledger book. Step 5: The accounts are adjusted based on accounting principles. The closing inventory value is determined.

7 Step 6: An adjusted trial balance is prepared. Step 7: Financial statements are prepared : I. )Trading Account II.)Profit and Lost Account III.)Balance Sheet Step 8: Financial report are prepared based on analysis and interpretations made from the financial statements.

8 TRANSACTION 8-FINANCIAL REPORTS 7-FINANCIAL STATEMENTS 6-ADJUSTED TRIAL BALANCE 5-ADJUSTMENT 1-SOURCE DOCUMENTS 2-BOOKS OF ORIGINAL ENTRY / DAY BOOKS 3-LEDGERS 4-TRIAL BALANCE

9 2.1-TYPES AND USAGE OF SOURCE DOCUMENTS

10 INVOICES CASH BILLS CREDIT NOTES DEBIT NOTES RECEIPTS VOUCHERS MEMOS CHEQUE BUTTS

11 Source Documents Usage Invoices Used in credit transactions only. Issued by sellers. Cash bills / Receipt / Vouchers Used in cash transactions only. Issued by sellers. A receipt is issued by a receiver of payment to the payer for payment made by cash or cheque. Issued by sellers. Used when a payment has been made but a receipt is not given by the the receiver of payment (seller). Issued by sellers. Credit notes Used to inform the buyer that his/her account has been credited with the stated amount. This document is usually issued when there is a sales return (return inwards) or when a sales price is overstated. Issued by sellers. Debit notes Used to inform the buyer that his/her account has been debited with the stated amount. This document is used when a sales price is understated Issued by sellers.

12 Source Documents Usage Memo Used as a notice when there is an increase in capital, drawings or other extraordinary event. Cheque butts Evidence that payment has been made by cheque

13 EXAMPLES OF SOURCES DOCUMENTS

14 INVOICE

15 VOUCHER

16 CASH BILL

17 RECEIPT

18 MEMO

19 CHEQUE BUTTS

20 CREDIT NOTE

21 DEBIT NOTE

22 2.2-TYPES OF BOOKS FOR PRIME ENTRY

23 Relationship between source documents,transactions and books of original entry SOURCE DOCUMENT TRANSACTION BOOK OF ORIGINAL ENTRY Invoice received Credit purchases Purchases day book / Purchases journal Invoice issued Credit sales Sales day book / Sales journal Cash bill received Cash purchases Cash book (Cr) Cash bill issued Cash sales Cash book (Dr) Receipt received Cash payment Cash book (Cr) Receipt issued Cash received Cash book (Dr) Credit note received Returns outwards Overstated purchase price Returns outwards day book / Purchases return journal

24 Credit note issued Returns inwards understated purchase price Returns inwards day book / Sales return journal Debit note received Understated purchase price General day book Debit note issued Understated sales price General day book Vouchers Payments made but no receipt issued Cash book (Cr) Cheque butts Payment by cheques Cash book (Cr-bank column) Memos Additional capital,drawings of assets,drawing of goods General day book

25 Books of original entry and types of transaction recorded BOOK OF ORIGINAL ENTRY TRANSACTION RECORDED Purchases day book Credit purchases of goods Sales day book Credit sales of goods Returns inwards day book Returns of sales Returns outwards day book Returns of purchases Cash book (Dr) Cash inflows or receipt Cash book (Cr) Cash outflows or payment General day book All other transactions that cannot be recorded in any special day book,cash book or petty cash book

26 2.3-DAYS BOOKS

27 All business tansactions Clasify put same types of transactions together Credit sales Enter in Sales Day Book Credit purchases Enter in Purchases Day Book Returns inwards Enter in Returns Inwards Day Book Returns outwards Enter in Returns Outwards Day Book Cash receipts and payments Enter in Cash Book Enter in double entry accounts in the various ledgers Sales Ledger Purchases Ledger General Ledger Other types General Day Book

28 Credit purchase, credit sales, returns inwards and returns outwards Date 2004 Dec Particulars Purchased goods from ABC Ltd. Sold goods to ZenZen Enterprise Returned goods to ABC Ltd. Due to defects ZenZen Enterprise returned goods Amounts 2,000 1,

29 Purchases Journal Date 2004 Dec 1 Particulars Folio Amounts ABC Ltd. PL 2000 Transferred to Purchases Account GL 2000

30 Sales Journal Date Particulars 2004 Dec 8 ZenZen Enterprise Transferred to Sales Account Folio Amounts SL 1900 GL 1900

31 Returns Outwards Journal Date 2004 Dec 15 Particulars Folio Amounts ABC Ltd. PL 300 Transferred to Returns Outwards Account GL 300

32 Returns Inwards Journal Date Particulars 2004 Dec 24 ZenZen Enterprise Transferred to Returns Inwards Account Folio Amounts SL 500 GL 500

33 General Day Book A general day book is a basic day book used to record all business transactions that cannot be recorded in a cash book or special day book.

34 General Day Book Format Date xx Particulars Dr Account A Cr Account B Folio Debit () GL GL xxxx Credit () xxxx

35 Example 1 The following is an invoice sent by Ipoh Furniture Enterprise (seller) to Pollin Enterprise, and the general day book entry based on this information. INVOICE Ipoh Furniture Enterprise 222 Jalan Kampar Kampar Tel : To : Pollin Enterprise No. 7, Selasar Rokam ǁ, 12/1/ No. Ipoh, Perak Particulars 1. Steel cabinet No Date: Price () Total () 2,400 2,400

36 General day book (Pollin Enterprise) Date Particulars 2005 Jan 12 Dr Furniture Cr Ipoh Furniture Enterprise (Credit Purchase of steel cabinet) Folio Debit Credit () ()

37 Example 2 The following shows a memo to Pollin Enterprise for the drawing of goods worth , and the record of the transaction in the General Day Book. Ipoh Furniture Enterprise MEMO 222 Jalan Kampar Kampar To: Pollin Enterprise No. 7, Selasar Rokam ǁ, Date:18/1/ Ipoh, Perak No. Particulars 1. Drawings of goods No Memo Price () Total () amy Verified by Sales Manager

38 General day book (Pollin Enterprise) Date Particulars 2005 Jan 18 Dr Drawings Cr Purchase (Drawing of goods for own use) Folio Debit Credit () ()

39 a)an existing firm Building Furniture Motor vehicles Bank Inventory Account receivable () 100,000 8,000 35,000 10,000 9,000 1,000 Liabilities Loan - maybank Accounts payable 70,000 2,000 Owner s equity *Capital (Assets-Liabilities) 91,000 Assets

40 General day book (pollin Enterprise) Date 2005 Jan 1 Particulars Building Furniture Motor vehicles Inventories Bank Accounts receivable Loan - Maybank Accounts Payable Capital (Assets,Liabilities and owner s equity on this date) Folio Debit () 100,000 8,000 35,000 9,000 10,000 1, ,000 Credit () 70,000 2,000 91, ,000

41 A newly established firm On 24 January 2005,ABC Enterprise started Its business with 2,000 cash and Deposited a cheque for 98,000 into the bank.

42 General day book Date Particulars 2005 Jan 24 Dr Cash Dr Bank Cr Capital (starting a business) Folio Debit () 2,000 98,000 Credit () 100,000

43 (a)credit purchase of non-current assets On 3 january 2005,MZ Enterprise purchased a machine worth 15,000 on credit from Pantel Enterprise General day book Date 2005 Jan 3 Particulars Debit () Dr Machine Cr Pantel Enterprise (purchased machine on credit) 15,000 Credit () 15,000

44 (b)credit sales of non-current assets On 12 february 2005,Harith Enterprise sold a Toyota Lorry valued at 40,000 to Intel Printing Company Ltd. on credit General day book Date 2005 Feb 12 Particulars Dr Intel printing company Cr Motor vehicles (sold lorry on credit) Debit () 40,000 Credit () 40,000

45 Recording drawings of goods and non-current assets 2005 Jan Owner took goods worth 400 for own use. Owner transferred a computer valued at 2,000 from the office to his house for use by his children. General day book Date 2005 Jan Particulars Dr Drawings Cr Purchases (owner took goods for own use) Dr Drawings Cr Office equipment (owner took computer home for use by children) Debit () 400 2,000 Credit () 400 2,000

46 Recording Additional Capital On 15 January 2005,the owner brought in his car worth 50,000 to be used in the keyword business.

47 General day book Date Particulars 2005 Jan 15 Dr Motor vehicles Cr Capital (owner brought in a car as additional capital) Folio Debit () 50,000 Credit () 50,000

48 Examples of : Purchases Day Book Sales Day Book Returns Inwards Book Returns Outwards Day Book

49 Purchases Day Book 20X9 Sept 1 J Blake ʺ 8 B Hamilton ʺ 19 C Brown ʺ 30 K Gabriel Transferred to Purchases Account (page 49) Invoice No Folio 9/101 9/102 9/103 9/104 PL 16 PL 29 PL 55 PL 89 GL 63 Amount 560 1, ,680 Purchases Ledger J Blake 20X9 Sept 1 Purchases B Hamilton 29)20X9 Sept 8 Purchases (page 16) Folio PB Folio PB 49 (page 1,380

50 C Brown 20X9 Sept 19 Purchases (page 55) Folio PB 49 K Gabriel 20X9 Sept 30 Purchases 230 (page 89) Folio PB General Ledger 20X9 Sept 30 Creditors Folio Purchases PB 49 2,680 (page 63)

51 Sales Day Book 20X9 Sept 1 D Poole ʺ 8 T Cockburn ʺ 28 C Carter ʺ 30 D Stevens & Co Transferred to Sales Account (page 26) Invoice No Folio SL 12 SL 39 SL 125 SL 249 GL 44 Amount 560 1, ,100 3,520 Sales Ledger D Poole 20X9 Sept 1 Sales Folio SB T Cockburn 20X9 Sept 8 Sales Folio SB 26 (page 12) 1,640 (page 39)

52 C Carter 20X9 Sept 28 Sales Folio SB 26 20X9 Sept 30 Sales Folio SB 26 (page 125) 220 D Stevens & Co 1,100 (page 249) General Ledger Sales 20X9 Sept 30 Debtors Folio SB 26 3,520

53 Returns Inwards Day Book 20X9 Sept 8 D Poole Sept 17 A Brewster Sept19 C Vickers Sept 29 M Nelson Transferred to Returns Inwards Account (page 10) Note No Folio 9/37 9/38 9/39 9/40 SL12 SL58 SL 99 SL 112 GL 114 Amount Sales Ledger D Poole 20X9 Sept 8 Returns inwards A Brewster 20X9 Sept 17 Returns inwards (page 12) Folio RI (page 58) Folio RI

54 C Vickers 20X9 Sept 19 Returns inwards M Nelson 20X9 Sept 29 Returns inwards (page 99) Folio RI (page 112) Folio RI General Ledger 20X9 Sept 30 Debtors Returns Inwards Folio RI (page 114)

55 Returns Outwards Day Book 20X9 Sept 7 R Grant ʺ 16 B Rose ʺ 28 C Blake ʺ 30 S Saunders Note No Folio PL 29 PL 46 PL 55 PL 87 Amount GL Transferred to Returns Outwards Account Purchases Ledger R Grant 20X9 Sept 7 Purchases Folio 40 B Rose 20X9 Sept 16 Purchases Folio 240 (page 7)

56 C Blake 20X9 Sept 28 Purchases Folio 30 S Saunders 20X9 Sept 30 Purchases Folio 360 General Ledger Returns Outwards 20X9 Sept 30 Returns for the month Folio 670

57 Sales Journal Purchases Journal Sales Returns Journal Purchases Returns Journal

58 6. Enter the following transactions into the sales,purchases and the returns inwards and returns outwards journals. Then post the items to the relevant accounts in the sales and purchases ledgers. The total of the journals are then to be transferred to the accounts in the general ledger May 1 Credit sales : 3 Credit purchases : 8 Credit sales : 10 Credit purchases : 12 Goods returned to us by : 14 Goods returned by us to : 17 Credit purchases : 20 Goods returned by us to : 24 Credit sales : Fong Lai Ming 590; Krishnan Ramasamy 1,480; Ahmad Budin 1,670. Samad Yatim 1,590; Yusof Majid 450; Lam Seng Kean 780. Salleh Kassim 890; Siti Abdullah 980; Jony Underwood 3,240. Pathma Muthu 340; Yusof Majid 580; Mustafa Zainal 1,320. Fong Lai Ming 80; Ahmad Budin 110. Samad Yatim 90; Lam Seng Kean 50; Pathma Muthu 40. Yusof Majid 580: Pathma Muthu 560; Zakaria Mydin 800. Yusof Majid 150. Ho Ban Keng 570; Salleh Kassim 760;

59 SALES JOURNAL Date 2006 May Inv. No. Particulars Fong Lai Ming Krishnan Ramasamy Ahmad Budin Salleh Kassim Siti Abdullah Jony Underwood Ho Ban Keng Salleh Kassim Gee Heng Lee Lam Seng Kean Transferred to Sales Account in General Ledger Folio Amount 590 1,480 1, , ,270

60 PURCHASES JOURNAL Date 2006 May Inv. No. Particulars Folio Amount Samad Yatim Yusof Majid Lam Seng Kean Pathma Muthu Yusof Majid Mustafa Zainal Yusof Majid Pathma Muthu Zakaria Mydin 1, , Transferred to Purchases Account in General Ledger 7,000

61 SALES RETURNS JOURNAL Date 2006 May Credit Note No. Particulars Folio Amount Fong Lai Ming Ahmad Budin Siti Abdullah Transferred to Sales Returns Account in General Ledger 260

62 PURCHASES RETURNS JOURNAL Date 2006 May Credit Note No Particulars Folio Amount Samad Yatim Lam Seng Kean Pathma Muthu Yusof Majid Transferred to Purchases Returns Account in General Ledger 330

63

64

65 QUESTION 9 Date Transactions Jan 6 9 Purchased vehicle 25,000 from General Motor Ltd by credit Paid water bill 150 by cash Sold goods 567 for cash 10 Purchased goods 500 by cash Sold goods 959 to Cherry by credit 16 Purchased goods 854 from Mike for cash Sold goods 139 to Patrick by cash 17 Purchased goods 650 from Zack by credit Required : 20 (a) Prepare the day book entries 22 (b) Post them into a ledger 25

66 GENERAL DAY BOOK DATE JAN 6 PARTICULARS Vehicle General Motor Ltd. (Purchases vehicle by credit) FOLIO DEBIT () Water Bill Cash (Paid water bill by cash) Cash Purchases Cash (Purchases goods by cash) Purchases Cash (Purchases goods by cash) Cash 139 Sales (Sold goods for cash) Sales (Sold goods to Patrick by cash) CREDIT ()

67 Sales Day Book Date Jan 17 Particulars Cherry Folio SL 959 Folio PL 650 Purchase Day Book Date Jan 25 Particulars Zack

68 GENERAL LEDGER Vehicle Account Jan 6 General Motor Ltd General Motor Ltd. Account Jan 6 Vehicle Water Bill/Utility Account Jan 9 Cash 150

69 Cash Account Jan Sales Sales Jan Water Bill/Utility Purchases Purchases Cash Cherry Cash Sales Account Jan Purchases Account Jan Cash Cash Zack

70 Sales Ledger Cherry Account Jan 17 Sales 959 Purchase Ledger Zack Account Jan 25 Purchases 650

71 QUESTION 10 Date Transactions Feb 3 6 Paid general expenses 564 by cheque Bought goods 1,234 from Hamid by cash Bought goods 2,369 from Majid Received rent 400 from Muthu by cash Sold goods 528 to Krishna on credit Sold goods 489 to Jenny Received commission 65 from Mama Trading by cash Required : 21 (a) Prepare the day book entries (b) Post them into a ledger

72 General Day Book Date Particulars Feb 3 General expenses Bank (Paid general expenses by cheque) 6 Purchases Cash (Bought goods from Hamid by cash) Folio Debit Credit () () 564 1, Cash Rent (Received rent from Muthu by cash) Cash Commission (Received commission from Mama Trading by cash) ,

73 Purchases Day Book Date Particulars Feb 9 Majid Folio PL 2,369 Folio Sales Day Book Date Feb 15 Krishna 18 Jenny Particulars

74 General Ledger General expenses Account Feb 3 Bank 564 Bank Account Feb 3 General expenses 564 Purchases Account Feb 6 Cash 9 Majid 1,234 2,369 Cash Account Feb 12 Rent 21 Commission Feb 6 Purchases 1,234

75 Rent Account Feb 12 Cash 400 Commission Account Feb 21 Cash 65 Sales Account Feb 15 Krishna 18 Jenny

76 Purchases Ledger Majid Account Feb 9 Purchases 2,369 Sales Ledger Krishna Account Feb 15 Sales 528 Jenny Account Feb 18 Sales 489

77 QUESTION 11 Date Transactions Jul 2 4 Sold goods to Wan 920 on credit Cash sales 526 to Lina Ekin sold goods to us 2,300 on credit Returned goods to Ekin 200 Bought goods from Lin 367 Bought goods for cash 880 Wan returned goods to us Required : (a) 14 Prepare the day book entries (b) Post them into a ledger

78 11(a) Date Particular Sales Day Book Folio Amount Jul 2 Wan SL Total Purchases Day Book Date Particular Folio Amount Jul 6 Ekin 10 Lin 31 Total PL 2,300 PL 367 2,667

79 Returns Outwards Day Book Date Jul Particular 8 Folio Amount 200 Ekin Returns Inwards Day Book Date Jul Particular 14 Wan Folio Amount 120

80 General Day Book Date Jul 4 Particular Cash Debit () 526 Sales Credit () 526 (Cash sales) 12 Purchases Cash (Bought goods for cash)

81 (b) Wan Account Jul 2 Sales 920 Jul 14 Returns inwards 120 Sales Account Jul 2 4 Wan Cash Purchases Account Jul Ekin Lin Cash 2,

82 Ekin Account 8 Returns Outwards 200 Jul Jul 6 Purchases 2,300 Lin Account Jul 10 Purchases Purchases 880 Cash Account Jul 4 Sales 526 Jul

83 Return Inwards Jul 14 Wan 120 Return Outwards Jul 8 Ekin 200

84 QUESTION 12 Date Transactions Jul Purchased goods from Mus on credit 458 Paid 368 cash for carriage inwards Credit sales to George 597 Received a credit note from Mus amounting to 52 We returned additional goods to Mus 14 Cash purchases from Mirza 650.Payment was made by cheque. Purchased stationeries from Suhairi for cash 34 Received electricty bill Required : 25 (a) Prepare the day book entries (b) Post them into a ledger

85 General Day Book Date Particulars Jul 2 Folio Debit () Purchases Mus (Purchased goods in credit) 458 Carriage inwards Cash (Paid carriage inwards by cash) George Sales (Credit sales) Mus Mus Purchases Bank (Cash purchases from Mirza by cheque ) Stationeries Cash (Purchases stationeries from Suhairi by cash) Electricity Tenaga Nasional Berhad (TNB) (Received electricity bill ) Returns outwards (Returns goods to Mus) Returns outwards (Returns additional goods to Mus) Credit ()

86 General Ledger Purchases Account Jul 2 Mus 19 Bank Mus Account Jul 13 Returns outwards 16 Returns outwards Jul 2 Purchases 458 Carriage inwards Account Jul 8 Cash 368 Cash Account Jul 8 Carriage inwards 23 Stationeries

87 George Account Jul 12 Sales 597 Sales Account Jul 12 George 597 Returns outwards Account Jul 13 Mus 16 Mus Bank Account Jul 19 Purchases 650 Stationeries Account Jul 23 Cash 34

88 Electricity Account Jul 25 TNB 280 Tenaga Nasional Berhad (TNB) Account Jul 25 Electricity 280

89 QUESTION 13 Date Transactions Mar 2 4 Deposited 10,000 cash into company s bank account Bought goods worth 5,678 from Robert by credit Paid Robert 245 by cash Sold goods worth 765 for cash Sold goods worth 321 to Peter on credit Peter paid us 100 by cheque Required : (a) Prepare the day book entries (b) Post them into a ledger

90 General Day Book Date Particulars Folio Debit () Mar 2 Bank Cash (Deposited cash into company s bank account) 10, ,678 Purchases Robert (Bought goods from Robert by credit) 6 Robert Cash (Paid Robert by cash) Cash Sales (Sold goods for cash) Peter Sales (Sold goods to Peter on credit) Bank Peter (Peter paid us by cash) 100 Credit () 10,000 5,

91 General Ledger Bank Account Mar 2 Cash 12 Peter 10, Cash Account Mar 8 Sales 765 Mar 2 Bank 6 Robert 10, Purchases Account Mar 4 Robert 5,678 Robert Account Mar 6 Cash 245 Mar 4 Purchases 5,678

92 Sales Account Mar 8 Cash 10 Peter Peter Account Mar 10 Sales 321 Mar 12 Bank 100