Accounting Building Business Skills€¦ · Recording Process Illustrated (cont.) Reference: Wong...
Transcript of Accounting Building Business Skills€¦ · Recording Process Illustrated (cont.) Reference: Wong...
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AccountingBuilding Business Skills
Paul D. Kimmel
Chapter Two:The Accounting Information System
PowerPoint presentation by Christine LangridgeSwinburne University of Technology, Lilydale
©2003 John Wiley & Sons Australia, Ltd
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Learning Objectives
• Analyse the effect of accountingtransactions and events on the basicaccounting equation.
• Explain what an account is and how ithelps in the recording process.
• Define debits and credits and explainhow they are used to record accountingtransactions.
• Identify the basic steps in the recordingprocess.
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Learning Objectives
• Explain what a journal is and how ithelps in the recording process.
• Explain what a general ledger is andhow it helps in the recording process.
• Explain what posting is and how it helpsin the recording process.
• Explain the purposes of a trial balance.
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Accounting Information System
The system of:• collecting and processing transaction data
and• communicating financial information to
interested parties
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Accounting transactions & events
• transactions are events that must be recorded inthe Financial Statements
• analyse the effect of business transactionson the basic accounting equation
The Accounting Equation must always balance
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Transaction analysis
• Issue of shares for $10,000
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Transaction analysis
• Borrowings of $5,000 from ANZ Bank
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Transaction analysis
• Purchase of office equipment for $5,000cash
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Transaction analysis
• Receipt of $1,200 cash in advance fromcustomer
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Transaction analysis
• Renders services for $10,000 cash
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Transaction analysis
• Payment of rent $900
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Transaction analysis
• Payment of insurance $600
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Transaction analysis
• Purchases of supplies on credit
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Transaction analysis
• Payment of dividend $500
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Transaction analysis
• Payment of employee salaries $4,000
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Transaction analysis
Summary• Analyse transaction in terms of effect on
Assets, Liabilities & Owner’s Equity• Two sides of the equation must always be
equal (Assets = Liabilities + Owner’s Equity)• Note cause of change in Owner’s Equity
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The Account
an individual accounting record of increases and decreases in a specific Asset, Liability, or Stockholders’ Equity item
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Debit & Credit procedures
Double entry system:• each transaction affects at least two
accounts• total debits must equal total credits
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Debit & Credit procedures
Dr/Cr procedures for assets & liabilities
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Debit & Credit procedures
Dr/Cr procedures for Owner’s Equity:
• Share Capital
• Retained Profits
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Debit & Credit procedures(cont.)
• Dividends
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Debit & Credit procedures
Dr/Cr procedures for Revenue & Expenses:
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Shareholder’s Equity Relationships
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Accounting Equation expanded
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Recording Process Steps
• analyse transaction and effect onaccounts
• enter transaction information in a journal• transfer journal information to accounts
in the Ledger
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The Journal
• a chronological record of all transactions• complete effect of a transaction disclosed
in one place• helps prevent errors as debit & credit
amounts are easily compared
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The General Journal
Reference: Wong Pty. Ltd.: 1st three transactions
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Chart of Accounts
• a listing of all accounts and associatedaccount numbers for a business
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The General Ledger
• contains all Asset, Liability and Owner’sEquity accounts
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Posting
• transfer of information from Journals tothe General Ledger
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Posting transactions - steps
• In ledger account to be debited record:Date of transactionEnter name of ledger account to be credited(cross-reference)Enter amountTick account number in General Journal toshow the entry has been posted
Repeat process for credit side of the entry
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Recording Process Illustrated
• Shares issued for cash
Reference: Wong Pty. Ltd.
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Recording Process Illustrated(cont.)
Reference: Wong Pty. Ltd.
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Recording Process Illustrated
• Loan of $5,000 from ANZ Bank
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Recording Process Illustrated(cont.)
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Recording Process Illustrated
• Office equipment purchased for cash
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Recording Process Illustrated(cont.)
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Balancing the accounts
Example: Cash ledger
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The Trial Balance
• a list of all the accounts and theirbalances at a given time listed in order asthey appear in General Ledger
• proves the mathematical equality ofdebits and credits after posting
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Preparing a Trial Balance
• List account numbers, titles andbalances
• Total debit and credit columns• Verify equality of debit and credit
columns
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Trial Balance – Wong Pty. Ltd
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Trial Balance - limitations
Errors not detected in a Trial Balance• transaction not journalised• correct journal entry not posted• journal entry posted twice• incorrect accounts used in
journalising/posting• offsetting errors made in recording
amount