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Topic 4: Bookkeeping Rule, Accounting Cycle Framework and Record Keeping (Part 2). Outline. Double entry rule (Duality concept) Steps in Accounting Cycle Source documents Journal Ledger. Transaction Analysis.
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Topic 4: Bookkeeping Rule, Accounting Cycle Framework and Record Keeping(Part 2)
Outline Double entry rule (Duality concept) Steps in Accounting Cycle Source documents Journal Ledger
Transaction Analysis • A process of identifying the specific effects of transactions and events on the accounting equation
What is a transaction? • Any event that both affects thefinancial positionof the business entity and can be reliably measured and recorded • 5 categories of transactions: • Assets • Liabilities • Owner’s equity • Revenues • Expenses
Steps in analyzing a transaction • Identify the accountand the account type (classification) • Determine the effect of the transaction on the balance of account(s) identified • Record the transaction on the debit or credit side of the relevant account
Double Entry Rule • Format of Accounts • “T” account format; and • columnar account format. • Example of a “T” account format • Example of a columnar account format
Double Entry Rule: Examples • The business received cash of RM1,000 for rent • Cash sales of RM10,000 • Sold goods to GDS for RM2,500 on credit • GDS returned defective goods worth RM200 • The business paid cheque RM1,000 for insurance • Purchased goods for RM5,000 by cheque • Purchased goods for RM3,000 from Big M on credit • Returned goods worth RM300 to Big M because of different brand name • Paid Big M RM1,000 in cash and earned discount received of RM50 • Received cash of RM1,500 from GDS and gave discount allowed of RM80 to GDS
Accounting Cycle Part 2 of Topic 4 LEDGER SOURCE DOCUMENTS JOURNAL CLOSING & REVERSING ENTRIES TRIAL BALANCE ADJUSTED TRIAL BALANCE (if required) ADJUSTING ENTRIES FINANCIAL STATEMENTS
Source Documents • A designed form which provides details of a transaction and the evidence that the transaction has occurred • It contains information like the date, the nature and types of transactions, the value of the transactions and the names of the buyers and sellers involved. • Source documents are important: • as evidence of transactions; • for recording transactions; • for auditing purposes.
Journal • Books of original entry which collates and summarizes information from source documents • Records business transactions in chronological order • Each transaction recorded must be supported by source documents • Types: • General journal • Special journals
Special Journals • Sales Journal • Records credit sales of goods • Purchases Journal • Records credit purchases of goods • Cash receipts journal • Records all cash received from any source • Cash payments Journal • Records all cash payments from the business • Sales return Journal • Records the returns of goods by the customers • Purchases return Journal • Records the returns of goods to the suppliers
General Journal • Records • Adjusting entries • Closing entries • Reversing entries • Other transactions that cannot be recorded in special journals
Journal • Functions: • Classifies or list like item together e.g all purchase of goods on credit • Acts as an aid for posting to the ledger by analysing the transaction into its debits and credits elements • Provides a record of transactions in date order • Enables easy reference forward to the ledger and back to source documents • Cuts down unnecessary details in the ledger
General Journal RM15,000
Cash Receipts Journal Cash Payments Journal
Ledger • Book ( file) of all the accounts • An account is a record where all changes (increase or decrease) to a particular item are shown • Types of ledgers • General (nominal) Ledger • Sales (Debtors) Ledger • For customers’ personal accounts • Purchases (Creditors) Ledger • For suppliers’ personal account
Dr Cash at Bank Cr T account Format