TOPIC 3a

Topic 3
Accounting Cycle

3.1 Steps in the Accounting Cycle
3.2 Types of Source Documents
3.3 Journalizing Process

3.3.1 Explain the use of special and general journal
3.3.2 Special Journal
3.3.3 General Journal
3.3.4 Subsidiary Ledger
3.4 Subsidiary Ledger
3.5 Preparation of Trial Balance
3.6 Preparing Financial Statement for Merchandising and Service Entities

1. Transaction
Analysis (Source

documents)

9. Post-closing 2. Journal entries
Trial Balance

8. Closing entries 3. Post to ledger

7. Statement of 4. Trial balance
Profit or Loss & 5. Adjustment
Statement of
Financial Position

6. Adjusted trial
balance

3.2 TYPES OF SOURCE DOCUMENTS

 A document (source documents) is a proof (evidence) for each business transaction that has
occurred.

 There are two types of functions, namely business source document for reference document and the
document as a source of information.

 Only the document source of information should be recorded in accounting books.
 Its provide objective and reliable evidence for useful information.

1. Purchase order

PURCHASE ORDER PO. 301  Issued by the buyer to
the seller that contains
Rizza Sport Sdn.Bhd. information about the
27, Tasek Gelugor, Pulau Pinang goods to be
purchased.
To: Date: 1/6/2021
Sihat Kuat Sdn. Bhd.

Please send the following items:  It is a commercial

document and first
official offer issued by
Code No. Specification Quantity Unit Price
(RM)
20 units 40 a buyer to a seller
2 dozen
B05 Soccer Ball 10 units 5 indicating types,
B07 Tennis Ball 20 units quantities and agreed
B08 Takraw Ball 30
R03 Racket prices for products or
50 services.

Delivery : Within 10 days ; FOB Destination

Prepared by,
Syuhada
(Purchasing Manager)

2. Invoice

SALES INVOICE No. 2927

Sihat Kuat Sdn.Bhd.  Delivered by the seller to the
101, Pongsu Seribu, Pulau Pinang buyer in the event of a credit
transaction.
To: Date: 10/6/2021
Rizza Sport Sdn. Bhd.  Information on merchandise,
such as the specification,
Your Order No: PO 301 Quantity Unit Amount quantity, price and sales term,
Code Specification Price (RM) is stated on the invoice.
No. 20 units (RM)
2 dozen 800  Original invoice - sent to the
B05 Soccer Ball 20 units 40 120 purchaser.
B07 Tennis Ball 1,000
R03 Racket 5 1,920  A copy of the invoice - kept by
192 the seller.
Terms: 5% 10 days 50
2% 30 days 1,728  Issued by the seller to the
Trade Discount 10% buyer and delivered together
Freight: FOB Destination Total with the goods.
K&K di K
Afiq  A delivery note describes
what a package contains -
(Sales Manager) including details about the
type and the quantity of
3. Delivery Note goods delivered.

DELIVERY NOTES DN. 2120

Sihat Kuat Sdn.Bhd.
101, Pongsu Seribu, Pulau Pinang

To: Date: 10/6/2021
Rizza Sport Sdn. Bhd.

Your Order No: PO 301

Code No. Specification Quantity
B05 Soccer Ball 20 units

R03 Racket 20 units

B07 Tennis Ball 2 dozen

Delivery: By van, freight charges paid

Prepared by Received by

Afiq Fahim

(Sales Manager) (Receiver)

4. Debit Note  Issued by the seller to the

DEBIT NOTES No. 038 buyer to inform that his

Sihat Kuat Sdn.Bhd. account has been debited
101, Pongsu Seribu, Pulau Pinang in the seller’s books of

accounts (Debt
increases).
To: Date: 11/6/2021
Rizza Sport Sdn. Bhd.

Your account is debited as follows:  Reasons for issued debit
note:
Code Specification Quantity Unit Amount
No. 10 units Price 300 - There are charges and
Takrawball (RM) expenses that have not
B08 delivered on 30 been charged or
10/6/2020, but 30 270 undercharge in the
not stated in the invoice.
Invoice no. 2927
- Some mistakes in the
Trade Discount 10% invoice which caused the
undercharge.
Total
- Charge interest to the
Prepared by buyer who did not settle
his/her due account.
Syahmi
- Charge to the buyers
(Sales Clerk) who did not return the
container.

5. Credit Note

CREDIT NOTE No. 158  Issued by the seller to the buyer
to inform the buyer that the
Sihat Kuat Sdn.Bhd. account has been credited in
101, Pongsu Seribu, Pulau Pinang the seller’(reduced debt).

Date: 13/6/ 2021  Reasons for issued credit note:

To: - Purchaser returns the goods
Rizza Sport Sdn. Bhd. due to damage or failure to
meet the specification.
Your account is credited as follows: Unit Amount
Code Specification Quantity Price (RM) - The return of empty
No. (RM) container.
120
B05 Returned of 3 units 40 - Supplier allows a price
reduction or grants a
damaged goods commission to the purchaser.

R03 Wrong spec 4 units 50 200 - To reduce the amount
overcharged by the supplier.
Subtotal 320
Trade Discount 10% 32

Total 288

Syahmi

(Accounts Clerk)

6. Receipt

OFFICIAL RECEIPT No. 3553

Sihat Kuat Sdn.Bhd.

101, Pongsu Seribu, Pulau Pinang

Date: 20/6/2021  When the purchaser
settles his/her account,
From Rizza Sport Sdn. Bhd. the seller will issue a
receipt as proof of
Ringgit Malaysia One thousand seven hundred and payment.
ten only

For Invoice No. 2927

………….RM 1,710………...

Cash / Cheque No: MBB 107900.

Akmal

………………………

Manager

7. Payment Voucher

PAYMENT VOUCHER
Borang baucer ini mesti digunakan bagi pembayaran jenis dalaman
di mana resit asalnyaStiidhaaktdaKpuatadtipSedronle.Bhihd.

101, Pongsu Seribu, Pulau Pinang

Date: 30/6/2021  Internal documents

To: provided by the business

..........Syarikat ASA Sdn. owner to record any kind of
Bhd........................................
payment.

Being payment for:  This voucher is very
important, especially when
………Shop rent for July the payee (the receiver) is
unable to produce receipts.
2020……………………………

……………………………………………………………………

RM 2,000.00

… Two thousand

only……………………………..…………

…………………………………………………………………....

Cash / Cheque No: …BCB 12345......…………………….....

Received by Approved by

Aisyah Nur

…………………………… ……………………………..

8. Cheque Butt / Stub

Date : 30.6.2021  It's the left side of the cheque that gets
To : Syarikat ASA Sdn. Bhd. left behind in the cheque book after
For : Shop rent for July 2021 you've torn out your cheque after
writing it out.
Balance b/f ____________________
Deposits ____________________  The part of a cheque that is retained as
Balance ____________________ a record your payments.
This cheque ____2,000.00_________
Balance ____________________  It is used as a reference and resource
records.
9. Bank Slip No. 1234567

 Form issued by the bank for the
transaction record store or
withdraw money from
customers.

10. Bank Statement

Types of Business Activities
1. Service Business
 Service business selling a price
 Example: Clinic, Laundry, Barber Accounting Service
2. Merchandising Business Transactions
 Purchase
 Purchases of goods for resale – cash purchases and credit purchases.
 Sales
 Cash
 Credit
 Discounts
 Encourage the purchase/sale – trade discount and cash discount (purchases discount and
sales discount)
 A buyer views a cash discount as a purchase discount
 A seller views a cash discount as sales discount

i. Trade discount
 Discount offered for bulk buying
 Example:
Buy 100-200 units – 10%
Buy 201-300 units – 20%
 NO RECORD needed for the trade discount. Thus, a buyer or seller records the
net amount (list price less trade discount)

ii. Cash discount
 Cash discount obtained after payment made within discounts period and will be

recorded in the account.
 The discounts calculation starts from the date of invoice.
 Example:

Credit term:2/10, n/30

2 (discount percentage) / 10 (discount period), n/30 (the last payment is due
credit maturity period)
 The discounts calculation starts from the date of invoice.

Credit terms: 2/10, n/30

If paid within 10 days from NO Full payment must be made within
date of invoice 30 days of the invoice date.

YES Example: Buying goods on credit amounting to
Cash discount of 2% RM1,500 credit terms 2/10, n / 30. Payment
will be due within 10 days as follows:

Invoice RM 1,500

Less discount 2% 30

Net total RM 1,470

 Purchase returns – when goods are returns to the seller

 Purchase allowance – when price changes are made due to the quality/quantity goods wrong
size defective part.

 Sales returns – when goods are returns from customers

 Sales allowance – when price changes are made due to the quality/quantity goods as wrong
size defective part.

 Freight Costs (Transportation Costs)
 Purchase agreement state whether seller or buyer pays freight costs.
 Terms of transport:
i. Free On Board Shipping Point
ii. Free On Board Destination

i. FOB Shipping Point
 Indicates that the title and responsibility of goods transfer from the seller to the buyer
when the goods are placed on a delivery vehicle.
 Since FOB shipping point transfers the title of the shipment of goods when the goods
are placed at the shipping point, the legal title of those goods is transferred to the
buyer. Therefore, the seller is not responsible for the goods during delivery.

Seller  Transportation Company  Buyer

Title transfer to the buyer
Buyer pays freight cost

ii. FOB Destination
The title of ownership is transferred at the buyer’s loading dock or buyer’s office building.
Once the goods are delivered to the buyer’s specified location, the title of ownership of the
goods transfers from the seller to the buyer.

Seller  Transportation Company  Buyer
Title transfer to the buyer
Seller pays freight cost

 Free on Board is a trade term used to indicate whether the buyer or seller is liable for
goods that are lost, damaged or destroyed during shipment.

 FOB shipping point indicates that the buyer takes responsibility for loss or damage
the moment the goods get to the shipper.

 FOB destination indicates that the seller retains liability for loss or damage until the
goods are delivered to the buyer.


 Accounting For Inventory

Perpetual Inventory System
Cost of goods sold is determined each time a sale transaction occurred

Periodic Inventory System
Cost of goods sold is determined only at the end of the accounting period.

3.3 JOURNALISING PROCESS

3.3.1 The use of general and special journal
 A journal is referred to as original or prime entry also known as the book of first entry.
 Information obtained from source documents about the business transaction will be recorded in

books or worksheets, known as journals, in chronological order. It must be recorded according to
the date of each transaction.
 The purpose of journals is to keep a day-to-day record of a business and its transactions.
 A journal is also known as a book of first entry or a book of original entry. Each transaction has
a debit and credit entry.
 The most basic form of journal is known as a general journal.
 There are 2 main types of journals maintained by company:
i. Special journal
ii. General journal

3.3.2 SPECIAL JOURNAL
 A special journal is used to record similar types of transaction.
 There are four types of special journals that are frequently used by merchandising business:

Sales Journal To record all sales of merchandise on account.
Purchases Journal (Credit sales).
Cash Receipts Journal
To record all purchases of merchandise on account.
(Credit purchases).
To record all cash received and cheques.

Cash Payments Journal To record all payments made by cash or cheques.

SALES JOURNAL
 Sales journal is used only to record sales of merchandise on account. (credit sales)
 Format:

Date Account Debited Term Dr Account Receivable
Cr Sales
RM

Total

Date of sales Customer’s name Credit terms Total sales/sales
designated value

EXERCISE 1
Business transactions of Enak Lazat Enterprise: Wholesale traditional biscuits.

March Transactions Journal
2021 Starting a wholesale business in traditional biscuit with RM100,000 as
initial capital into the bank. ,000
1

2 Bought a vehicle worth RM50,000 credit by issuing Notes Payable, 5%,
for a period of 5 years from Toyota Capital.

3 Bought biscuits RM30,000 from suppliers, Hani Enterprise and
payments are made by cheque (no. 515).

4 100 boxes of cookies sold on credit to Jasni Enterprise, invoice no. 001,
RM 16,800. Terms of 2/15, n / 30.

6 Sold 50 boxes of biscuits for RM10,200 to Dani Enterprise, invoice no.
002, terms 2/15, n / 30.

11 Bought biscuits of Rm 52,600 from Doremi Enterprise, invoice dated on
March 11, Terms of 2/15, n/30.

12 Jasni returned faulty goods worth RM800.

14 Received payments from Jasni Enterprise for sale on 4 March.

16 Received credit memo from Doremi Enterprise RM 200, for the returned
of faulty biscuits.

21 Sent a cheque no. 516 to Doremi Enterprise, for the payment of an
invoice dated on March 11, after good returned and discounts.

22 Bought biscuits from Wali Enterprise on credit RM 41,625, an invoice
dated March 18, terms 2/15, n/30.

31 Issued cheque no. 517, RM15,900 to the salaries department, for
employee's salary payments.

31 RM 134 680 cash sales.

Instructions:
1. Record the business transactions of Enak Lazat Enterprise into the appropriate journals.
2. Post to the appropriate ledgers.
3. Prepare the trial balance on 31st March 2020.

EXAMPLE 1
Recording sales transactions on credit.

March Sales transactions on credit.

4 100 boxes of cookies sold on credit to Jasni Enterprise, invoice no. 001, RM 16,800.
Terms of 2/15, n / 30.

6 Sold 50 boxes of biscuits for RM10,200 to Dani Enterprise, invoice no. 002, terms
2/15, n / 30

SALES JOURNAL

Date Accounts Debited Terms Dr. Account Receivable
Cr. Sales
March 4 Jasni Enterprise 2/15, n/30 (RM)
6 Dani Enterprise 2/15, n/30
31 Total 16,800

10,200

27,000

PURCHASES JOURNAL
 Record purchase transactions on credit.
 Format:

Date Account Credited Term Dr Purchases
Cr Account Payable
RM

Total

Date of purchase Creditor’s name Credit terms Total
designated purchase/purchase
value

EXAMPLE 2

March Purchase transactions on credit

March 11 Bought biscuits of Rm 52,600 from Doremi Enterprise, invoice dated on March 11,
terms of 2/15, n / 30.

22 Bought biscuits from Wali Enterprise on credit RM 41,625, an invoice dated March
18, terms 2/15, n /30.

PURCHASE JOURNAL

Date Accounts Credited Terms Dr. Purchase
Cr. Account Payable
(RM)

March 11 Doreme Enterprise 2/15,n/30 52,600
22 Wali Enterprise 2/15, n/30 41,625
31 Total 94,225

CASH RECEIPTS JOURNAL
 Record all transactions of cash receipts / bank (cheque).
 Example:

1. Cash sales of merchandise
2. Collections of accounts receivable
3. Receipt of money from bank loans
4. Additional cash capital
5. Cash received from disposal/sales
 Format:

Date Account Credited Dr Dr Dr
Bank Cash Sales Discount

RM RM RM

Date of cash Name of Total cash Total cash
receipt customer or received in received
other account cheques
purchase

Amount of discount given and it will
reduce the cash received amounts

EXAMPLE 3

Transactions – Cash Receipts
March 1 Starting a wholesale business in traditional biscuit with RM100,000 as initial capital

into the bank.
14 Received payment from Jasni Enterprise for sale on 4 March.
31 RM 134 680 cash sales.

CASH RECEIPTS JOURNAL

Date Accounts Credited Dr. Dr. Dr.
Capital Cash Bank Sales Discounts
March 1 (RM) (RM)
14 (RM)
100,000
*320
AR - Jasni Ent. 15,680

31 Sales 134,680

31 Total 150,360 100,000 320

* 2% x 16,000

CASH PAYMENTS JOURNAL
 Record payment transactions in cash / check (bank).
 Example of cash payments:

1. Cash purchases of merchandise
2. Payment of Account Payable
3. Loan payment of Accounts Payable
4. Payment of expenses in cash

EXAMPLE 4

March Cash payments transaction
3 Bought biscuits RM30,000 from suppliers, Hani Enterprise and payments are made by
cheque (no 515).
21
Sent a cheque no. 516 to Doremi Enterprise, for the payment of an invoice dated on March
31 11, after good returned and discounts.

Issued Cheque no. 517, RM15,900 to the salaries department , for employee's salary
payments.

CASH PAYMENT JOURNAL

Date Accounts Debited Cr. Cr. Cr.
Cash Bank Purchases Discounts
March 3 (RM)
21 (RM) (RM)
30,000
31 Purchases 51,352 *1,048
31 (RM52,400 X 2%)
AP - Doreme 15,900
Enterprise 97,252 1,048

Salary Expenses
Total

3.3.3 GENERAL JOURNAL

 Record transactions that are not recorded in special journals such as:
1. Sales returns and allowance
2. Purchases return and allowance
3. Drawings of goods
4. Purchase of assets on credit
5. Non-cash capital contribution

 Format

Date Account titles and explanations Debit RM Credit RM

( explanation relate to journal)
EXAMPLE 5

March 2 Transactions recorded in the General Journal
Bought a vehicle worth RM50,000 credit by issuing Notes Payable, 5%, for a
12 period of 5 years from Toyota Capital.
16
Jasni returned faulty goods worth RM800.

Received credit memo from Doremi Enterprise RM 200, for the returned of
faulty biscuits.

Date Account title and explanations Debit (RM) Credit (RM)

March 2 Vehicle 50,000
Notes Payable
50,000
(Bought a vehicle from Toyota Capital)
800
12 Sales Returns and Allowances 800
Accounts Receivable – Jasni
200
(To record sales returned) 200

16 Accounts Payable – Doreme Enterprise
Allowances and Purchase

Returns
(To record purchase returned)

LEDGER

 A ledger is a book containing accounts in which the classified and summarized information from the
journals is posted as debits and credits. It is also called the second book of entry.

 The ledger contains the information that is required to prepare financial statements. It includes
accounts for assets, liabilities, owners' equity, revenues and expenses. This complete list of accounts
is known as the chart of accounts. The ledger represents every active account on the list.

 There are 2 main types of ledgers maintained by company:
i. Subsidiary ledger
ii. General ledger

3.3.4 SUBSIDIARY LEDGER

 There are two forms of ledger accounts
1. T- account
Account’s Name
Date Explanation Ref RM Date Explanation Ref RM

2. Columnar ledger Account’s Name Credit RM Balance RM
Date Explanation Ref Debit RM

 Subsidiary ledger of Accounts Receivable RM
 Record all transactions related to debtors with their balance

 Subsidiary ledger of Accounts Payable
 Record all transactions related to creditors with their balance

 Example of subsidiary ledger

Name of Accounts Receivable / Accounts Payable
Date Explanation Ref RM Date Explanation Ref

OR

Name of Accounts Receivable / Accounts Payable

Date Explanation Ref Debit RM Credit RM Balance
RM

3.4 SUBSIDIARY LEDGER OF ACCOUNTS RECEIVABLE

EXAMPLE 6

SALES JOURNAL Dr. Accounts Receivable
Date Accounts Debited Terms Cr. Sales
RM
2021 Jasni Enterprise 2/15, n/30
March 4 Dani Enterprise 2/15, n/30 16,800
Total 10,200
6 27,000
31

CASH RECEIPTS JOURNAL

Date Accounts Credited Dr. Dr. Dr.
Cash Bank Sales Discounts
(RM) (RM)
(RM)
March 1 Capital 100,000 *320

14 AR - Jasni Ent. 15,680

31 Sales 134,680

31 Total 150,360 100,000 320

GENERAL JOURNAL Debit (RM) Credit (RM)
Date Account title and explanations 800
800
12 Sale Returns and Allowance
Accounts Receivable – Jasni

(To record sales returned)

POST JOURNAL TO THE ACCOUNTS RECEIVABLE SUBSIDIARY ACCOUNTS

Date Explanation Jasni Enterprise
Ref RM Date Explanation Ref RM
2021
Mar 4 Sales SJ 16,800 Mar 12 Sale return GJ 800
14 Cash CRJ 15,680
14 Sales Discount CRJ
320
16,800 16,800
========= =======

Date Explanation Ref RM Date Explanation Ref RM

OR

Date Explanation Jasni Enterprise Credit RM Balance
Ref Debit RM RM
2021 Sales 800
Mar 4 Sales return SJ 16,800 15,680 16,800
Cash GJ 16,000
12 Sales discount CRJ 320
14 CRJ 320
14 0

______________________________

Date Explanation Ref Debit RM Credit RM Balance
RM

POST SUBSIDIARY LEDGER TO THE ACCOUNTS RECEIVABLE CONTROL ACCOUNTS (GENERAL
LEDGER)

GENERAL LEDGER Account Receivable
Date Explanation Ref RM Date Explanation Ref RM
2021
Mar 31 Sales SJ 27,000 Mar 31 Sales return GJ 800
Cash CRJ 15,680
Apr 1 Balance b/f 27,000 Sales discount CRJ
======== Balance c/f 320
10,200
10,200 27,000
======

Date Explanation Accounts Receivable Credit RM Balance RM
Ref Debit RM
2021 Sales
Mar 31 Sales return SJ 27,000 27,000
Cash GJ 800 26,200
CRJ 15,680 10,520
10,200
320

3.4 SUBSIDIARY LEDGER OF ACCOUNTS PAYABLE

PURCHASE JOURNAL

Date Accounts Credited Terms Dr. Purchase
Cr. Account Payable
March 11 Doreme Enterprise 2/15,n/30 (RM)
22 Wali Enterprise 2/15, n/30 52,600
31 Total
41,625

94,225

CASH PAYMENT JOURNAL

Date Accounts Cr. Cr. Cr.
Bank Purchases Discounts
March 3 Debited Cash (RM)
21 (RM) (RM)
31 30,000
31 Purchases 51,352 *1,048
(RM52,400 X 2%)
AP - Doreme 15,900
Enterprise

Salary
Expenses

Total 97,252 1,048

GENERAL JOURNAL Debit (RM) Credit (RM)

Date Account title and explanations 200
200
March 16 Accounts Payable – Doreme Enterprise
Purchase Returns & allowance

(To record purchase returned)

POST JOURNAL TO THE ACCOUNTS PAYABLE SUBSIDIARY ACCOUNTS

Doreme Enterprise

Date Explanation Ref RM Date Explanation Ref RM
Purchase PJ 52,600
2021
Mar 16 Purchase return GJ 200 Mar 11 52,600
21 Bank CPJ 51,352 =======

21 Purchase Dis CPJ 1,048
52,600

=========

Date Explanation Ref RM Date Explanation Ref RM

OR

Date Explanation Doreme Enterprise
Ref Debit RM Credit RM Balance RM
2021 Purchase
Mar 11 Purchase return PJ 52,600 52,600
Bank
16 Purchase discount GJ 200 52,400
21 CPJ 51,352 1,048
1,048 0

____________________________

Date Explanation Ref Debit RM Credit RM Balance RM

2021

POST SUBSIDIARY LEDGER TO THE ACCOUNTS PAYABLE CONTROL ACCOUNTS (GENERAL
LEDGER)

GENERAL LEDGER

Account Payable

Date Explanation Ref RM Date Explanation Ref RM

2021
Mar 31 Purchase return GJ 200 Mar 31 Purchase PJ 94,225
Bank CPJ 51,352

Purchase disc CPJ 1,048
Balance c/f 41,625

94,225 94,225
======== ======
Apr 1 Balance b/f 10,200

Date Explanation Accounts Payable Credit RM Balance RM
2021 Ref Debit RM
Mar 31
Purchase PJ 94,225 94,225
Purchase return GJ 94,025
Bank CPJ 200 42,673
Purchase discount CPJ 51,352 41,625
1,048

GENERAL LEDGER

What Is a General Ledger?

A general ledger represents the record-keeping system for a company's financial data with debit and credit
account records validated by a trial balance. The general ledger provides a record of each financial
transaction that takes place during the life of an operating company.

The general ledger holds account information that is needed to prepare the company's financial statements,
and transaction data is segregated by type into accounts for assets, liabilities, owners' equity, revenues, and
expenses.

 Posting is the process of transferring records from the journal into the appropriate ledger.
specify the general ledger accounts to be prepared.

Sales Journal Sales, Account Receivable
Purchases Journal Purchases, Accounts Payable
Cash Receipts Journal Cash, Sales Discounts, Capital, Sales, Account
Receivable.
Cash Payments Journal Cash, Bank, Purchase Discounts, Capital, Purchase,
Accounts Payable and salary expenses
General Journal Vehicle, Notes Payable, Sales returns, Purchase returns,
Accounts Payable and Accounts Receivables.

1. T- account
Account’s Name

Date Explanation Ref RM Date Explanation Ref RM

2. Columnar ledger Explanation Account’s Name Credit RM Balance RM
Date Ref Debit RM

Columnar Ledger

Date Particulars Cash Credit Balance (Dr)
31/3 Multiple accounts Ref Debit 150,360
CRJ 150,360
Date Particulars Credit Balance (Dr)
Bank
31/3 Multiple accounts Ref Debit 100,000
31/3 Multiple accounts CRJ 100,000
CPJ 97,252 2,748

Date Particulars Purchase Credit Balance (Dr)
Ref Debit
31/3 Bank CPJ 30,000 30,000
31/3 Payable Account PJ 94,225 124,225

Date Particulars Account Payable Credit Balance (Dr)
Ref Debit 94,225
31/3 Purchase PJ 94,225
31/3 All. & Purchase Returns GL 200 94,025
31/3 Bank CPJ 51,352 42,673
31/3 Purchase Discounts CPJ 1,048 41,625

Date Particulars Sales Credit Balance (Dr)

31/3 Account receivable Ref Debit 27,000 27,000
31/3 Cash
SJ 134,680 161,680
CRJ

Date Particulars Account Receivables Credit Balance (Dr)

31/3 Sales Ref Debit 800 26,200
31/3 Sales returns
31/3 Cash SJ 27,000 15,680 10,520
Sales discounts GJ 320 10,200
CRJ
CRJ

Date Particulars Sales Discount Credit Balance (Dr)
31/3 Account Receivable Ref Debit 320
CRJ 320

Date Particulars Purchase Discount Credit Balance (Dr)
31/3 Account Payable Ref Debit
CPJ 1,048 1,048

Date Particulars Capital Credit Balance (Dr)
1/3 Cash Ref Debit 100, 000
CRJ 100 000

Date Particulars Salary Expense Credit Balance (Dr)
31/3 Bank Ref Debit 15, 900
CPJ 15 900

Date Particulars Vehicle Credit Balance (Dr)
2/3 Note Payable Ref Debit 50, 000
GJ 50 000

Date Particulars Note Payable Credit Balance (Dr)
2/3 Vehicle Ref Debit
GJ 50 000 50, 000

Date Particulars Sales Returns Credit Balance (Dr)
12/3 Account Receivable Ref Debit 800
GJ 800

Date Particulars Purchase Returns Credit Balance (Dr)
16/3 Account Payable Ref Debit 200 200
GJ

3.5 PREPARATION TRIAL BALANCE

 Trial Balance - list of all the general ledger account balances.
 The TOTAL on the debit side and credit side must be equal.
 Trial Balance is prepared to confirm/ verified the balance of total debits and the total credits at

the end of an accounting period.
 In conclusion, the Trial Balance is a summary of account balances of the ledger.
 Format

Enak Lazat Enterprise
Trial Balance

As at 31 March 2021

Accounts Debit (RM) Credit (RM)

Capital 2,748 100,000
Bank 150,360 161,680
Cash
Sales 320 1,048
Sales discounts 124,225 50,000
Purchases
Purchase discounts 15,900 200
Payable notes 50,000 41 625
Salary expense
Vehicle 800
Allowances and Sale Returns 10 200
Allowances and Purchase Returns
Accounts Receivable
Accounts Payable

354,553 354,553

3.6 PREPARING FINANCIAL STATEMENT FOR MERCHANDISING AND SERVICE ENTITIES

1. Statement of Profit or Loss
2. Statement of Owner’s Equity
3. Statement of Financial Position

Merchandising Business Service Entities Business

 Sell goods  Sell services
 The revenue is sales  The revenue is service revenue
 With cost of goods sold  No cost of goods sold
 Statement of profit or loss with multiple step’s  Statement of profit or loss with ‘single step’

form form.

Statement of Profit or Loss for a merchandising Business

Enak Lazat Enterprise
Statement of Profit or Loss
For the year ended 31 March 2021

RM RM RM

Sales XXX

(-) Sales discount XX
(-) Sales returns and allowances XX (XX)

Net sales XXX
Less: Cost of Goods Sold
Beginning inventory XXX

Purchases XXX
(-) Purchase discount (XX)
Purchase return and allowance (XX)

Net purchase XXX
+ Freight-in XX
Import duty XX

Cost of purchases XXX
Cost of available for sale XXX

(-) Ending inventory (XX) (XXX)
Cost of goods sold
Gross profit XXX

+ Other revenue XX
Rental Revenue XX
Interest Revenue XXX

Total income XXX
(-) Operational expenses XXX (XXX)

Salaries expense XXX
Freight-out ====
Net profit or net loss

Enak Lazat Enterprise RM RM
Statement of Profit or Loss
For the year ended 31 March 2021 XXX
XX
RM XX

Sales XXX
(-) Sales discount (XX)
(-) Sales returns and allowances XXX
Net sales ====
Less: Cost of Goods Sold
Beginning inventory
Purchases
(-) Purchase discount

Purchase return and allowance
Net purchase
Cost of available for sale
(-) Ending inventory
Cost of goods sold
Gross profit
(-) Operational expenses

Salaries expense
Net profit

1. Statement of Owner’s Equity (Format) RM
Enak Lazat Enterprise

Statement of Owner’s Equity
As at 31 March 2021

Beginning capital
+ additional capital
+ net profit

(-) drawings
Ending capital

Enak Lazat Enterprise
Statement of Owner’s Equity

As at 31 March 2021

RM

Beginning capital
+ additional capital
+ net profit

(-) drawings
Ending capital

Statement of Financial Position

ASSETS Enak Lazat Enterprise RM RM
Non- Current Assets Statement of Financial Position xx
Office Equipment xx xxx
(-) Accumulated Depreciation As at 31 March 2021 xx xx
Vehicle RM xx
(-) Accumulated Depreciation xx
xx xx xx
Total Non-current Assets (xx) xx xx
xx
Current Assets xx xx
Cash (xx) xx
Bank
Accounts Receivable xx
Ending Inventory xx
Prepaid Insurance xx
Accrued Commission Revenue xx
Total Current Assets (xx)
Total Assets
xx
OWNER’S EQUITY
Beginning capital xx
+ Additional capital
+ Net profit / - Net loss
- Drawings

Ending capital

LIABILITIES xx
Non-current liabilities xx
Notes Payable
Loan xx
xx
Current Liabilities xx
Accounts Payable
Accrued electricity expenses
Prepaid rental revenue

Total Liabilities

Total Owner's Equity and Liabilities

Enak Lazat Enterprise RM RM
Statement of Financial Position

As at 31 March 2021
RM

Assets
On a financial position statement (or balance sheet), assets will typically be classified into current assets and
non-current (long-term) assets.

 Current assets are those assets which can either be converted to cash or used to pay current
liabilities within 12 months. Normally, it is listed in order of liquidity Current assets include cash and
cash equivalents, short-term investments, accounts receivable, inventories and the portion of prepaid
liabilities paid within a year.

 A non-current asset cannot easily be converted into cash. Non-current assets include property, plant
and equipment (PPE), investment property, intangible assets, long-term financial assets, investments
accounted for using the equity method, and biological assets.

# Key Terms
 liquidity: Availability of cash over short term: ability to service short-term debt.

Liability
 In financial accounting, a liability is defined as an obligation of an entity arising from past transactions
or events, the settlement of which may result in the transfer or use of assets, provision of services or
other yielding of economic benefits in the future.

Equity
 Equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities
are paid.
 The types of accounts and their description that comprise the owner’s equity depend on the nature of
the entity and may include: Common stock, preferred stock, capital surplus, retained earnings,
treasury stock, stock options and reserve.

Limitations of Financial Position Statements
1. Based on historical costs:
Financial statements do not disclose the current worth of the company. Initially we record transactions at
their cost. The value of assets and liabilities changes over time.

Sometimes items, such as marketable securities, we alter the amount to match changes in their market values,
but other items, such as fixed assets, do not change. Thus, the balance sheet could be misleading if we present
a large part of the amount which is based on historical costs.

2. Based on Personal judgment:
The value of assets that appears in the statements depends on the standards of the person who deals with it.
For example, the method of depreciation, mode of amortization of assets etc, depends on the personal judgment
of the accountant.

3. Inflationary effects:
If the situation of inflation the rate is relatively high, the amounts of assets and liabilities in the balance sheet will
appear inordinately low, as we cannot adjust it for inflation. This mostly applies to long-term assets.

4. Judgement in respect of various accounting policies:
As we prepare a balance sheet on the basis of going concern concept, where asset valuation does not represent
realizable value or replacement value of the asset.

And, we know that the amount that we express through financial statements is not accurate. Further, it depends
on the judgment of the management in respect of accounting policies followed.

5. Intangible assets not recorded:
We do not record many intangible assets as assets. Instead, we charge any expenditure made to create an
intangible asset as an expense.

This policy underestimates the value of a business, especially one that who spend a large amount to build up a
brand image or to develop new products. It is a particular problem for startup companies that who creates
intellectual property, but so far who generates minimal sales.

6. Interim reports are produced:
As we know financial statements are interim reports, thus these are not final reports. Therefore, a user can gain
an incorrect view of financial results by only looking at one reporting period. We can only compute final gain or
loss of the business at the time of termination of business.

7. Not always comparable across companies:
If a company wants to compare the results of its company with different companies, their financial statements
are not always comparable, because different companies use different accounting practices.

8. False figures:
The management team of a company may skew the results. This situation arises when there is undue pressure
to report excellent results, such as when a bonus plan calls for payouts only if the sales level increases. One
might suspect the presence of this issue when the results spike to a level exceeding the industry norm.

9. Lack of non-financial factors:
The financial statements take into consideration only financial factors and they do not address non-financial
issues, such as the environmental attentiveness of a company’s operations, or how well it works with the local
community.

A business reporting excellent financial results might be a failure in these other areas such as the image of the
business, the loyalty of its workers, etc.

10. Figures are distorted:
Financial statements provide information about either historical results or the financial status of a business as of
a specific date. The statements do not provide any value in predicting what will happen in the future.