1. PPT t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 19994.1 ACCOUNTING Financial and Organisational Decision Making Chapter 4 The recording focus Slides written and designed by Tony Van Eekelen

2. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.2 Learning Objectives In this chapter you will be introduced to : –the principles of the double entry system –the rules of debit and credit –the effect of transactions on the accounting equation and how to apply the rules of debit and credit, as appropriate, to such analyses –general ledger accounts in T-format and columnar format

3. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.3 Learning Objectives –The trial balance, and to why errors may exist in the accounting records even though the trial balance ‘balances’ –how to prepare a trial balance, a profit and loss statement and a balance sheet from information you have entered into the general ledger of an entity

4. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.4 Learning Objectives basic computerised accounting how to make entries in the general journal how to make closing entries interim reports

5. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.5 Designing a simple manual recording system Three main requirements of a recording: –efficiency minimum recording procedures cumbersome systems increase costs and errors –control provides checks against errors –accessibility being able to access more information

6. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.6 Basic recording system Activity Input/actual events Recording and reports Source documents/transactions General Journal General LedgerClassifying and summarising Trial Balance Verification and summarising in preparation for final output Recording of events Output Financial Statements = = = = =

7. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.7 Components Original evidence records –evidence of the event or transaction –source documents; invoice, cheque butt,.. Journal entries –chronological listing of like transactions

8. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.8 Ledger Accounts basic storage unit for business transactions simplest form is the T account Name of Account A/c no. Left hand or debit side (DR) Right hand or credit side (CR)

9. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.9 Ledger Accounts Separate account for each asset, liability, owners’ equity, revenue and expense category Assist in summarising all information Accounts are referenced by name or number

10. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.10 The rules of double entry To record transactions within accounts a coding system is needed. This systems must reflect the effects on the accounting equation and keep in balance. In general: Assets = Liabilities + Owners’ equity DR + - CR + CR + CR DR - DR -

11. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.11 Example Purchased supplies $200 with cash. Supplies $200 Cash $200 Asset IncreaseDecrease

12. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.12 Example Purchased motor vehicle for $20000 on loan. Motor Vehicle $20000 Loan $20000 Liability DecreaseIncrease

13. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.13 Example Owner contributes $3000 cash. Cash $3000 Capital $3000 Owners’ equity DecreaseIncrease

14. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.14 Example Provided services for cash, $5000 Cash $5000 Services Revenue $5000 Revenue DecreaseIncrease

15. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.15 Example Paid electricity account $300 with cash. Electricity Expense $300 Cash $300 Expense IncreaseDecrease

16. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.16 Simplified recording system Chart of accounts –list of balance sheet and profit and loss statements accounts to record the transactions AssetsLiabilitiesOwners’ equity CapitalWithdrawals Revenue Expenses CashLoanCapitalDrawings Fees Rent EquipmentAccounts Payable Telephone Motor vehicle +=

17. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.17 Simplified recording system Form of accounts –T format –continuous balance Form of account Account Name:NO: DateParticularsDebit Credit Balance

18. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.18 Trial Balance After the transactions are record in the accounts, a list of the account balance can test whether the recording procedures have been followed. This is done in a trial balance List all the account balances and the total of debit balances should equal the total of the credit balances

19. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.19 Trial Balance Trial balance as at 3 June 1999 DRCR Cash at bank $3,200 Equipment $1,300 Motor vehicle $15,000 Accounts payable $9,500 Capital $10,000$19,500

20. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.20 Trial balance errors Not equal –incorrect additions –incorrect recording of amount or wrong side –omitting debit or credit entry –incorrect amounts Debit  Credit

21. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.21 Trial balance errors Equal –omission of transaction –debit and credit entries reversed –recording twice –transactions in wrong accounts –wrong amounts in both accounts Debit =Credit

22. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.22 The system Chart of Accounts Transactions Journal Ledger Trial balance Financial Statements

23. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.23 Chart of accounts The list of accounts to be maintained for the accounting entity. Based upon the financial reports All accounts are numbered and placed in order eg –Assets1000-1999 –Liabilities2000-2999 –Owners’ equity3000-3999 Capital3000-3099 Withdrawals3100-3199 Revenue3200-3299 Expenses3300-3399

24. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.24 Journal entries Never enter directly into ledger accounts but into a journal. Various types but common is general journal Journal entry format Date Acct No ParticularsDebitCredit

25. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.25 Final reports and closing entries At the end of the financial year, the ledger is “tidied up”. All temporary accounts are closed off to summary accounts. Revenue and expense accounts are closed to the profit and loss summary account. The Profit and loss summary account is then closed to the capital account. Also the drawings accounts is closed to the capital account.

26. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.26 Closing entries Closing Revenue –DrRevenueXX – Cr Profit and Loss SummaryXX Closing Expenses –Dr Profit and loss SummaryXX – CR Expense (Rent)XX

27. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.27 Closing entries Closing Profit and loss summary If Profit then –DrProfit and loss summaryXX – Cr CapitalXX If Loss then –DrCapitalXX – Cr Profit and Loss summaryXX

28. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.28 Closing entries Withdrawals –Dr CapitalXX – Cr DrawingsXX

29. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.29 Financial reports Balance sheet as at 31 May 20X0 Assets Liabilities Current Current Cash at Bank 30,400Acct. Payable 2,300 Acc. Receivable 10,000 40,400 Non Current Non- currentloan Payable 6,000 Equipment 7,000 8,300 Owners’ equity Capital 30,000 Add Profit 9,700 less Drawings 600 39,100 $47,400 $47,400

30. PPT t/a Carnegie et al; Accounting :Financial and Organisational Decision Making © McGraw-Hill Australia Pty Ltd, 1999 Chapter 4: The recording focus 4.30 Summary Original evidence records Accounting records Financial Statements Source documents Journals Ledger Trial Balance Statement of cash flows Balance Sheet Profit and Loss Statement Closing Entries