TULIP'S GROUP

PURPOSE OF CASH AND
CASH EQUIVALENTS

1) Opersting activities :

- Are the principal revenue-producting activities
of the enterprise and other activities that are

not investing or financing activities .

2) Investing activities :

- Are the acquisition and disposal of long-
term assets and other investments not

inc;uded in cash equivalents .

3) Financing activities :

- Are the result in changes in the size and
compositon of the equity capital and

borrowings of the enterprise.

CASH BOOK

• Cash book is used to record transaction of payments
either received in cash or by cheque .

DIFFERENCES BETWEEN TWO COLUMN CASH BOOK
AND THREE COLUMN CASH BOOK

• TWO COLUMN CASH BOOK
- A two column cash book is one in which there are two

columns on each side . One is used to record cash
transactions, the second is used to record bank transactions
or discount .

• FORMAT

• EXAMPLE RECORD

• THREE COLUMN CASH BOOK

- A three column cash book is one which consists of three
separate columns on the debit side as well as credit side for
recording cash , bank and discount . The discount column on
the debit side of the cash book will record discounts allowed
and that on the credit side discount received . Discount
columns in both side are not balanced only totalled .

• FORMAT

• EXAMPLE RECORD

BANK RECONCILIATION STATEMENT

• Bank statement is a summary of transactions between the
customer and the bank for the duration of a month .

• Bank reconciliation statement will compare the book balance
(refers to the closing bank balance as shown in the company’s
cash book) to the bank balance (refers to the closing balance
shown on the bank statement) and identify the differences
between the two .

DIFFERENCES BETWEEN BANK
STATEMENT AND CASH BOOK
(BANK COLUMN)

• The transaction have been recorded in the cash book, but not
in the bank statement .

• The transaction have been recorded in the bank statement,
but not in cash .

• Bookkeeping errors may be made by either the bank, the
business or both .

THE REASONS FOR DISCREPANCIES
BETWEEN THE CASH BOOK

(BANK CLOUMN) BALANCE WITH THE
BANK STATEMENT BALANCE

i) The transaction have been recorded in the cash book, but not in the bank statement.

• Deposit not credited / cheque not proposed
- The company receives a cheque from their customer during the month, and bank

in the cheque, but, the cheque is not credited by the bank.
• Unpresented cheque / outstanding cheque

- The company prepares cheque for payments. The cheques are credited in the
company books, but, the cheques’ recipients do not cash in the cheques.

ii) The transaction have been recorded in the bank statement, but not in cash.

• Bank service charge
- The bank charges a service charge or commission to manage a company’s

account.
• Credit transfer

- The amount is paid directly by the company’s customer into the company’s
account in the bank.
• Fixed instruction

- The company give an instruction to the bank in order to make a payment on
behalf of the company from time to time.
• Dishonoured cheque

- A customer pays the company by issuing a cheque. But, the cheque cannot be
processed by bank due to some reasons, and, bank may return the cheque to the
customer without notifying the company.

iii) Bookkeeping errors may be made by either the bank, the business or both.

• Misstatement in the cash book
- Sometimes an error happens when recording in the company’s cash book (bank).

Therefore, the balance in the company’s cash book will differ from the balance in the bank
statement.

THE BANK RECONCILIATION STATEMENT FORMAT

RECORD BANK RECONCILIATION STATEMENT FROM :

• Unadjusted cash book

- to prepare bank reconciliation statement with unadjusted cash book,
the cash book balance no need to be updated.

- it can be done by adding or deducting all the difference items in bank
statement and cash book.

- below is the format of bank reconliation statement with unadjusted cash
book.

a) Cash book balance ( bank column )

ADD : Bank Reconciliation Statement As At …………… RM
xxx
LESS : Debit / (Credit) balance as per cash book
xxx
ADD / The items that already added in the bank statement but not yet
LESS : added in cash book. (xxx)

- credit transfer , dividend , saving interest xx

The items that already deducted in the cash book but not yet xxxx
deducted in bank statement.

- unpresented cheque
The items that already deducted in the bank statement but not yet
in cash book.

- bank charges, bank commission, standing order

The items that already added in the cash book but not yet added in
bank statement.

- uncredited deposit

Erros in cash bank
- amount wrongly recorded in cash book

Errors in bank statement
- cheque deposited by another bank client was wrongly credited to

company’s bank statement.

Debit / (credit) balance as per bank statement

b) Bank statement balance

Bank Reconciliation Statement As At …………

ADD : Debit / (credit) balance as per bank statement RM
LESS : The items that already deducted in the bank statement but not xxx
yet deducted in cash book.
xxx
- bank charges, bank commission, standing order
(xxx)
The items that already added in the cash book but not yet
added in bank statement. xx
xxxx
- uncredited deposit
The items that already added in the bank statement but not yet
added in cash book.

- credit transfer, dividend, saving interest

ADD / The items that already deducted in the cash book but not yet
LESS : deducted in bank statement.

- unpresented cheque
Errors in cash book

- amount wrongly recorded in cash book

Errors in bank statement

- cheque deposited by another bank client was wrongly
credited to company’s bank statement.
Debit / (credit) balance as per cash book

• Adjusted cash book

- To prepare bank reconciliation statement with adjusted cash book, the
cash book must be updated first.

- It can be done by adjusting the items that have been recorded in bank
statement only and not yet recorded in cash book.

- It can be shown as below ;

Is a balance c/d in cash book

Debit ADJUSTED CASH BOOK Credit
Date Bank
Particulars Bank Date Particulars (RM)
(RM)
xxx
Balance b/d xxxx Payment in bank xxx
xxx
Receipt in bank xxx statement not yet xxx
xxx xxxx
statement not yet xxx recorded in cash

recorded in cash book, for example :
• Bank charge
book for example : • Bank commission
• Credit transfer • Standing order
• Dividend • Balance c/d
• Saving internet

xxxx

Balance b/d xxxx

Balance as per adjusted cash book
• Below is the format of bank reconciliation statement with adjusting cash book ;



Definition of
Partnership

An arrangement between two or
more people to oversee business
operations and share its profits and
liabilities. In a general partnership
company, all members share both
profits and liabilities. Professionals
like doctors and lawyers often form a
limited liability partnership.

The Characteristics
of Partnership
Business

01 OWNERSHIP
02
A partnership is a business combination of 2-20 partners
with the aim of making profit. When in partnership with
banks & stock brokers, the number of partners should not
exceed 10 people

PARTNERSHIP AGREEMENT

Not a requirement by law. Written agree provide

clarification of partners mutual rights & duties.

03 PROFIT & LOSS
Gains or losses are shared according to the
conditions in the Partnership Agreement that are
mutually agreed upon & signed together

04 LIMITED LIFE
Dissolve when any of partner withdraw, decease (heirs
have right to the share), bankrupt, insane (without court
order) or with court order.

05 SHARE OF LIABILITY
06
Unlimited liability for all liabilities incurred by the
business (except limited partners), settlement to the

extent of private properties.

TAXATION

Partnership not subject to income tax. Individual
partners separately liable for income tax based on

their share of reported profit.

Partnership Agreement

All profits or losses are
shared equally.

Partners are not eligible for
interest on their capital injected

into the partnership.

All partners are entitled to
take part in managing the

business.

Partners are not eligible
for salary.

Loans or advances by partners
to the business will carry an
interest at the rate of 8% per
year.

Types of Partnership

GENERAL PARTNER

The partner participate fully
in the operational

managerial functions of the
business & is also fully liable

for the partnership debts.

SLEEPING PARTNER

A partner who does not participate
in the operational & managerial
functions of the business.

LIMITED LIABILITY PARTNER

A partner whose liability is limited to
the amount of capital invested by him

into the partnership business.

Advantages &
Disadvantages of

Partnership

ADVANTAGES DISADVANTAGES

Accumulation of skills, Partners become fully
knowledge & liable for all claims
experiences. against the firm to an
unlimited extent.

Combine the financial Liable for actions
strength of all conducted by other
partners, as the partners on behalf of
liability of partners is firm.
joint & several.

The profit & losses Dissolution when
are shared by all partners(s) withdraw,
parners. decrease, bankrupt or
with court order.

Ease of information Succcess of the
compare to company, partnership depends
where any two on quality of
persons capable of relationship amongst
entering into contract partners.
can start partnership.

Types Of Account
For Partnership

Maintenance of capital
accounts of partners.

Ascertainment & allocation of
profit & losses.

Revaluation of partnership
(new admission & death)

Dissoluation of partnership

Partners’ Capital
Account

a)

b)

Example 7.1

Appropriation Of
Profit & Loss

➢ The net profit (after charging the interest
on capital, partners’ salary & commission &
after taking into account the interest on
drawings) is to be shared by all the
partners in the agreed profit sharing ratio..

Example 7.2



Admission New
Partners & Retirement
Or Death Of Partners.

a) REVALUATION

• A change in the profit & loss sharing ratio or a
change in the composition of a partnership

(admission of a new partner, withdrawal or death of
an old partner) all assets (including goodwill) &

liabilities must be revalued & adjusting entries are
required to be made immediately.

Gain on revaluation: Fair value (Market value) > Net book value
Loss on revaluation: Fair value (Market value) < Net book value

• The overall profit or loss on revaluation of
all assets & liabilities of the partnership
should be shared immediately among the

old partners in the old profit & loss sharing
ratio by transferred to the partners’ capital

account.

Example 7.3

Goodwill

✓ Goodwill usually exists because of factors

such as managerial skills, good employee
relations, strategic business standing &
good product or service reputation.

Partners have to compute their firm’s
goodwill for the following purposes :

✓ A new partner joins a firm
✓ An existing partner retires or dies
✓ Partners want to dissolve the firm
✓ Partners change their profit sharing

ratio.
There two methods used to determine
goodwill value :

i. Business value method
ii. Average profit method

i) Business value
method

▪ This method refers to a value of
business which exceeds the net assets
of business (total asset- total liability)

Example 7.4

ii) Average Profit
Method

▪ The value of goodwill is equal to the
value of the average annual net profit
for a specified pas number of year.This
Often reffered to as X years purchase
of the net profit.

Example 7.5

Accounting For
Goodwill

There are two ways in showing
goodwill:
a. A goodwill account is open.
b. A goodwill account is not open;

write-off goodwill.

a) A goodwill account is open.

If goodwill is retained, the entries are
as follows:

Debit: Goodwill Account
Credit: Partners’ Capital

Example 7.6

b) A goodwill account is not open; write-off
goodwill.

I goodwill is written-off, the
accounting enteries required are as
follows:

Debit: Goodwill Account
Credit: Partners’ Capital Account
(old partners in the old profit sharing ratio)

Debit: Partners’ Capital Account
(new partners in the new profit sharing ratio)

Credit: Goodwill Account

Example 7.7

Admission Of New
Partner

➢ When a new partner is admitted a new
agreement is formed & thus the firm is
reconstituted.

➢ The new partner acquires the right to share
the assets for brings in the capital & the
right to share the future profits.

➢ The profit sharing ratio changes, the assets
& liabilities are revalued & goodwill is
calculated & distributed among the old
partners in their sacrificing ratios.

Example 7.8



Death or Retirement
Of a Partnership

➢ The partner’s account will have to be settled,
& new ratios will have to be calculated.

➢ Goodwill needs to be distributed to the
partners in terms of profit & loss ratio as the
goodwill earned by the firm is the result of the

efforts of all partners in the past.

Example 7.9



Dissoluion Of
Partnership

The partnership will be dissolved for
the following reasons:

a) Death, unethical or bankruptcy of one of the
partners.
b) Agreement between fellow partners.
C) When the business is unable to settle its debt & is
forced to close.
d) Order of law (court)
e) When it is not profitable to continue business.
f) When the purpose of establishing a partnership is
reached.
g) When the partnership firm is changed to a limited
company.

Following are the actions to be taken when
businesses are dissolved:

a) Sold all the assets (except cash or bank) for cash &

recognize a gain or loss on realization.

b) Allocate the gain or loss from realization to the

partners based on their income ratios.

c) Pay partnership liabilities in cash
d) Any remaining balances in the current account are

transferred to the capital account.

e) Distribute any remaining cash to the partners on

the basis of their capital balances.

Example 7.10



ACCOUNTING
FOR

INVENTORIES

DEFINITION

Inventories provides
guidance for

determining the cost
of inventories and
the subsequent
recognition of the
cost as an expenses

TYPES OF
INVENTORIES

BUSINESS ENTITIES

Trading Entity Manufacturing
Entity
Goods acquired
for sale Finished Goods

1

Work In Progress

Raw Meterials

COSTS OF PURCHASE

• The invoice price of inventories

• All Directly Attributable Costs

of purchase, such as import
duties and other taxes

• Trade discounts, rebates,

other similar trade allowances

• The cut-off point to capitalize

costs to purchase is up to
when the inventories have
reached their location and

condition

• Location : when a shipment of

raw materials have reached
the warehouse

• Condition : when the

inventories are ready for use
in production

COSTS OF CONVERSION

• Including fixed and variable

manufacturing overheads

• Finished goods shall include

conversion costs of :
- Direct labour

- Production overheads

• MFRS 102 requires

application of the full
absorption costing
principle to inventories

• It requires a systematic allocation of

variable and fixed production overheads
that are incurred in converting raw
materials into finished goods

• Variable production overhead costs vary

directly or nearly directly with the volume
of production

• Fixed production overhead costs

remains relatively constant regardless
the volume of production

• The standard specifies that the

allocation shall be based on the normal
capacity of the production facilities

OTHER COSTS

Other costs are to be included
in the cost of inventories only
to the extent they are incurred
in bringing the inventories to

their present location and
condition

- Examples of other costs :
Cost of designing products for
specific customers
- Borrowing costs incurred to
bring the inventories to their
condition for sale

COSTS TO BE EXCLUDED

01 Costs that relate generally
to the purchase

02 All selling costs

03 Storage cost, unless
necessary in the

production process before
a further production stage

04 Administrative overheads
that do not contribute to
bringing inventories to
their present location and
condition

05 Exchange differences
arising directly on

acquisition of inventories
invoiced in a foreign
currency

NET REALISABLE VALUE

The estimated selling price
of the inventory in the
ordinary course of

business less any costs of
completion and costs

necessary to make the sale

- NRV is an entity-specific
value unlike the fair value

- NRV may not equal fair
value less costs to sell

- Estimates of NRV are based
on the most reliable evidence

available at the time the
estimates are made

MEASUREMENT OF
PROFIT AND VALUE
OF CLOSING
INVENTORIES

- PERIODIC INVENTORY
SYSTEM

- PERPETUAL
INVENTORY SYSTEM

PERIODIC INVENTORY
SYSTEM

- Inventory account is only updated
periodically

- At the date of purchase – recorded in
the Purchase Account

- At the date of sale – no cost of inventory
recorded in inventory account or cost of
goods sold account

- Inventory amount at any point in the
time cannot be determined directly from
the books entity

PERPETUAL INVENTORY
SYSTEM

- Inventory Account is continually
updated for the movement in the
inventory items

- At the date of purchase – cost of
purchase added to inventory account

- At the date of sale – cost of inventory
sold is deducted in inventory account

- Inventory amount at any point in time
can be determined directly from the
books of entity

- Periodically, an inventory – count may
be undertaken to verify the inventory
amount

COSTS FORMULA

• OTHER METHODS
- Techniques such as standard

cost and retail price may be
used for convenience if the
results approximate cost
- Last In First Out ( LIFO ) is

prohibited
• Specific Identification Method

• First In First Out ( FIFO )
• Weighted Average Methods

WRITING DOWN TO NET
REALIZABLE VALUE

• Generally, inventories are written
down to net realizable value item
by item. Other basic is to group
similar or related items

• Raw materials and supplies held
in the manufacture or production
of finished goods in which they
are incorporated are expected to
be sold above costs

ACCOUNTING SYSTEM
FOR INVENTORY

• An accounting system tracks the
movement and flow of the
inventory

• The perpetual and periodic
inventory system are 2 common
methods used by the companies
• Choosing the method to be used

is essential to a business
because each system has its own

advantages and disadvantage