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Why Record Transactions?
• To have a systematic recording of transaction analyze report to users
• Items that goes to Balance Sheet (Asset, Liability & Equity)– To know to financial position how much your assets, the
amount owe to others and the money that business owns (equity)
• Items that goes to Profit and Loss Statement (Sales, Sales return/return inward, Sales discount, Purchase, Purchase return/return outward, Expense)– Know the performance (profit and loss) for particular
accounting period
How to record transaction?
• Identify the TWO (2) Items• Give a appropriate name• Identify the types of account
– Balance sheet items– Profit and loss items
• Know the increase and the decrease• Determine the debit and credit
– Balance sheet items (always involve two side)– Profit and loss items (normally take one side)
• Post to appropriate Journal or Ledger Trial Balance Profit & Loss/ Balance Sheet
Examples: Balance Sheet Items (Asset)Buy an equipment by cash
RM100
Equipment
1) Identify the TWO Items
Cash
Examples: Balance Sheet Items (Asset)
Office Equipment
2) Give a appropriate name
Cash in Hand
Buy an equipment by cash RM100
Equipment
Cash
Examples: Balance Sheet Items (Asset)
Office Equipment
3) Identify the types of account
Cash in Hand
= Asset
= Asset
Buy an equipment by cash RM100
Identify the type of these accountCash in Bank
Bank Loan
= Asset
= Liability
Capital = Equity
Sale of Goods = Sales
Salary/ Pay bill = Expense
Identify the type of these account
Purchase goods = PurchaseReturn Inward/ Sale Return = Contra-sales
Return Outward/ Purchase Return = Contra-purchase
Sales Discount = Contra-salesDrawing = Contra-capital
Examples: Balance Sheet Items (Asset)
Office Equipment
4) Know the increase and the decrease
Cash in Hand
= Asset
= Asset
Buy an equipment by cash RM100
Examples: Balance Sheet Items (Asset)
Office Equipment
5) Determine the debit and credit
Cash in Hand
= Asset
= Asset
Debit
Credit
Buy an equipment by cash RM100
Determine debit and credit for the following:
Asset Debit
Credit
Liability Credit
Debit
Capital Credit
Debit
Determine debit and credit for the following:
Sales Credit
Return Inward/Sales Return Debit
Purchase DebitReturn Outward/Purchase Return Credit
Sales Discount Debit
Expense Debit
Examples: Balance Sheet Items (Asset)
Dr Office Equipment RM100
6) Post to appropriate Journal or Ledger
Cr Cash in Hand RM100
Buy an equipment by cash RM100
2 Jan 2012
(Buy an office equipment)
Journal Entries
Examples: Balance Sheet Items (Asset)
6) Post to appropriate Journal or Ledger
2 Jan 2012 Cash in Hand RM100
Buy an equipment by cash RM100
Office Equipment1 Jan 2012 Balance b/d RMxx
Account Ledger
Only Balance Sheet Items has balance b/d or beginning balance
Maybe why it is called BALANCE Sheet
Examples: Balance Sheet Items (Asset)
2 Jan 2012 Office Equipment RM100
6) Post to appropriate Journal or Ledger
Buy an equipment by cash RM100
Cash in Hand
1 Jan 2012 Balance b/d RMxx
Account Ledger
Trial Balance
Cash
Bank
Car
Equipment
Inventory
Purchase
Return InwardReturn Outward
Sales Discount
Expenses
Sales
Creditors
Bank Loan
Drawing
Capital
Trial Balance
Cash
Bank
Car
Equipment
Inventory
(Purchase)
(Return Inward)
Return Outward
(Sales Discount)
(Expenses)
Sales
Creditors
Bank Loan
(Drawing)Capital
Trial Balance
Cash
Bank
Car
Equipment
Inventory
(Purchase)
(Return Inward)
Return Outward
(Sales Discount)
(Expenses)
Sales
Creditors
Bank Loan
(Drawing)Capital
Profit
Trial Balance
Cash
Bank
Car
Equipment
Inventory
Creditors
Bank Loan
(Drawing)Capital
Profit
BALANCE SHEET
Cash
Bank
Car
Equipment
Inventory
Creditors
Bank Loan
(Drawing)Capital
Profit
ASSETS LIABILITIES
EQUITIES
PROFIT AND LOSS STATEMENT
(Purchase)
(Return Inward)
Return Outward
(Sales Discount)
(Expenses)
Sales
Profit
PROFIT AND LOSS STATEMENT
(Purchase)
(Return Inward)
Return Outward
(Sales Discount)
(Expenses)
Sales
Profit
Cost of goods sold
WAIT ! WHAT ABOUT INVENTORY???
BALANCE SHEET
Cash
Bank
Car
Equipment
Inventory
Creditors
Bank Loan
(Drawing)Capital
Profit
ASSETS LIABILITIES
EQUITIES
BALANCE SHEET
Cash
Bank
Car
Equipment
Inventory
Creditors
Bank Loan
(Drawing)Capital
Profit
ASSETS LIABILITIES
EQUITIES
Change in Inventory
BALANCE SHEET
Cash
Bank
Car
Equipment
Inventory
Creditors
Bank Loan
(Drawing)Capital
Profit
ASSETS LIABILITIES
EQUITIES
Change in Inventory
Trial Balance
Cash
Bank
Car
Equipment
Inventory
(Purchase)
(Return Inward)
Return Outward
(Sales Discount)
(change in inventory)
Sales
Creditors
Bank Loan
(Drawing)Capital
Profit
(Expenses)
PROFIT AND LOSS STATEMENT
(Purchase)
(Return Inward)
Return Outward
(Sales Discount)
(Expenses)
Sales
Profit
Cost of goods sold
(Change in inventory)
We calculate Beginning Inventory – Ending Inventory to calculate Change in Inventory
Cost of goods sold
Beginning Inventory plus: PurchaseLess: Purchase returnLess: Ending InventoryCost of Goods Sold
PROFIT AND LOSS STATEMENT
Beginning Inventory
(Return Inward)
+ Purchase
(Sales Discount)
Less: Expenses)
Sales
Net Profit
- Purchase Return
Total Sales
- Ending Inventory
Less: Cost of goods sold
Gross Profit(Cost of goods sold)