PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY EDITOR COMMITEES Managing Editor Nur Hashimah Binti Said Editor Nabila Farhana binti Mohamad Isa Nur Hashimah Binti Said Writer Nabila Farhana binti Mohamad Isa Nur Hashimah Binti Said Designer Nur Hashimah Binti Said Application Publishers and Developers Nabila Farhana binti Mohamad Isa Nur Hashimah Binti Said e ISBN: e ISBN 978-967-2498-71-1 DTM40123 PRINCIPLES ACCOUNTING FOR TOURISM AND HOSPITALITY Tourism and Hospitality Department Polytechnic Muadzam Shah © Nabila Farhana binti Mohamad Isa © Nur Hashimah Binti Said First Edition 2022 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, without permission in writing from the publisher. Published in Malaysia by: POLITEKNIK MUADZAM SHAH LEBUHRAYA TUN ABDUL RAZAK 26700 MUADZAM SHAH, PAHANG Tel. No: 09 450 2005/ 2006 /2007 Fax No : 09 450 2009 Website: www.pms.edu.my
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY About Author i Nabila Farhana binti Mohamad Isa was born and raised in Seremban, Negeri Sembilan. She graduated with a Bachelor of Technology Management (High Tech Marketing) from Universiti Teknikal Malaysia Melaka (UTeM). She started working as lecturer at Politeknik Muadzam Shah, Pahang from 2015 until now. Nabila lives in Muadzam Shah with her husband and their son. For more information about Nabila and her e-book, she can be reached at [email protected]. Nur Hashimah Binti Said was born in Tumpat, Kelantan. She currently serving as Tourism & Hospitality lecturer Polytechnic Muadzam Shah, Pahang Darul Makmur. She graduated with a Degree in Tourism Management (Hons) from University Utara Malaysia (UUM) Sintok, Kedah. She has extensive knowledge in the conceptual and practice of Hospitality and Tourism industry through her vast experiences comprising as a researcher in social science at the Centre for Extension, Entrepreneurship and Professional Advancement (APEEC) of Universiti Putra Malaysia (UPM). She started working at Polytechnic Muadzam Shah, Pahang from 2011 until now. For more information about Nur Hashimah and her e-book, she can be reached at [email protected].
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY ACKNOWLEDGEMENT We would like to express our appreciation and thanks to those who have provide a lot of guidance and encouragement towards the arrangement of DTM40123 PRINCIPLES ACCOUNTING FOR TOURISM AND HOSPITALITY eBook. We aim to continuously contribute our efforts and knowledge for our next students and look forward to provide the best for their understanding in Tourism and Hospitality course. Nabila Farhana binti Mohamad Isa Nur Hashimah Binti Said LECTURES Tourism and Hospitality Department Polytechnic Muadzam Shah PAHANG DARUL MAKMUR ii
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY PREFACE Alhamdulillahirabbil'aalamin, all thanks go to the Most Merciful God with His permission, Principles Accounting For Tourism And Hospitality E-book is successfully published. Tourism has become possibly the fastest growing industry in the world. This E-book is a source of reference and module for lecturers during teaching and learning session. The book aims to provide provides the knowledge on concepts and principles of accounting in various business transactions. This book is designed to gives emphasis on source documents, books of prime entry, double entry accounting system, preparation of a trial balance, adjustment and preparation of financial statement at the end of an accounting period. This book emphasizes the concepts and principles for accounting based on the accounting standards in recording a tourism and hospitality business transactions, prepare source documents, books of prime entry, ledger, trial balance, adjustment and financial statement according to a complete accounting cycle and practise critical thinking skills and problem solving skills in preparing complete accounting cycle to achieve the syllabus of Tourism and Hospitality programme. Therefore, teaching and learning processby lecturers will emphasize the strength of knowledge and skills that students need to apply. Not only that, the teaching and learning methods also emphasize student center learning (SCL). We hope that this E-book can be best used by all lecturers in Polytechnic. Thank you and best regards. iii
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CONTENTS ABOUT AUTHORS i ACKNOWLEDGEMENT ii PREFACE iii CHAPTER 1 INTRODUCTION OF ACCOUNTING 1.1 Bookkeeping 1 1.2 Accounting 1 1.3 Differences between Accounting and Bookkeeping 2 1.4 Basic Accounting Concepts 3 1.5 Users of Accounting Information 5 1.6 Phases in an accounting cycle 6 Tutorial Exercise 8 CHAPTER 2 SOURCE DOCUMENTS 2.1 Source Documents 12 2.2 Displays the documents used before business activities 12 2.3 Displays the documents used during business activities 13 2.4 Displays the documents used after business activities 13 Tutorial Exercise 15 CHAPTER 3 BOOKS OF PRIME ENTRY 3.1 Books Of Prime Entry 17 3.2 General Journal 18 3.3 Special Journal 18 3.4 Cash Book 20 Tutorial Exercise 23 CHAPTER 4 LEDGERS 4.1 Double Entry Concepts 25 Tutorial Exercise 26 CHAPTER 5 TRIAL BALANCE 5.1 Trial Balance 28 5.2 Closing & Balance Off A/Cs 30 5.3 Chart of Account 30 Tutorial Exercise 34
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CHAPTER 6 FINANCIAL STATEMENT 6.1 Introduction 36 6.2 Trading Account 37 6.3 Balance Sheet 39 Tutorial Exercise 41 CHAPTER 7 ADJUSTMENTS 7.1 Introduction 45 7.2 Concepts of accruals and prepayments 45 7.3 Bad Debts 46 7.4 Bad Debts Recovered 47 7.5 Provision for Doubtful Debts (PFDD) 47 7.6 Depreciation method 47 7.7 Method of calculating depreciation 48 Tutorial Exercise 49
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CHAPTER 1 : INTRODUCTION OF ACCOUNTING 1.1 Bookkeeping a. Bookkeeping is the process of classifying, recording and summarizing of business transactions. b. The process involve in bookkeeping is shown in Figure 1.1.1: Figure 1.1.1 Process of bookkeeping 1.2 Accounting a. The process of classifying, recording and summarizing of business transactions in monetory units and interpreting the financial data of a business in order to assist stakeholders in making decisions. b. The process involve in accounting is shown in Figure 1.1.2: Figure 1.1.2 Process of accounting 1 Classifying Recording Summarizing Classifying Recording Summarizing Analyzing Interpreting
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 1.3 Differences between Accounting and Bookkeeping 2 Accounting Bookkeeping ● Involves more technical understanding and advance accounting procedures. ● Requires a basic understanding and practice of financial accounting. ● Accounting tasks are performed by accounting graduates or certified professional accountants. ● Performed by non-accountants who have gained the necessary training and experience in bookkeeping • Accounting is responsible for a wide range of accounting tasks and manages the various financial decisions from the respective business departments ● Comprises only the simple accounting tasks in a financial department such as: - Issue bill from cash or credit activities - Record receipts from customers - Verify and record invoices from suppliers
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 1.4 Basic Accounting Concepts a. The basic accounting concepts can be illustrated in Figure 1.1.3 below: Figure 1.1.3 Basic accounting concepts 1.4.1 Accounting Principles a. Historical cost All accounting records are prepared based on the cost value or the actual price stated in the source document, that is the current value of the transaction. b. Objectivity Each transaction must be recorded based on objective evidence or verified and unbiased information. c. Full disclosure Published accounting information must always be relevant, timely, reliable, unbiased & free from mistake/error. d. Matching of revenue and expenses Under this concept, there is a cause-and-effect relationship between expense and revenue. Profit is determined by matching (comparing) revenue for the period against the expense incurred. 3 Accounting Principles •Historical cost •Objectivity • Full disclosure • Matching of revenues & expenses Accounting Assumptions • Separate entity •Going concern • Money as unit measurement • Consistency •Accounting period Accounting Constraints • Prudence • Materiality
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 1.4.2 Accounting Assumptions a. Separate entity A business & its owner are two separate entities. The business’s transactions must be accounted separately from the owner’s transactions. b. Going concern It is assumed that a business will continue to expand & operate in the future. c. Money as a unit of measurement All transactions are recorded in the country’s monetary unit. This means that the values of different types of goods can be expressed in terms of money. d. Consistency The same accounting method will be used from one accounting period to another accounting period. e. Accounting period Business activities can be divided into specific periods, for example, a month, a quarter, six months or a year. The accounting period must be consistent in order to enable comparison of business performance between accounting periods. 1.4.3 Accounting Constraints a. Prudence Requires accountants to exercise a degree of caution in the adoption of accounting policies to avoid overstating assets and revenues, and to avoid understating liabilities and expenses. b. Materiality It refers to the relative importance or significance of an item or event. Items that are not material need not be reported separately. 4
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 1.5 Users of Accounting Information a. There are two types of users of accounting information which are internal users and external users. b. Internal users of accounting information can be described as person who are inside a business and who use the information for day to day business decisions. c. External users of accounting information can be described as person who are person or other institutions outside of business and who have no involvement in the day to day business operations or decisions. d. For easy understanding, the users of accounting information can be explained in Figure 1.1.4. Figure 1.1.4 Users of accounting information 5 • Management • Finance department • Marketing department • Shareholders • Current and future investors Internal users • Bank or Creditors • Employee unions • Suppliers External users • Government (LHDN)
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 1.6 Accounting Cycle a. Accounting cycle is the process of business transaction occur that involves several phases over a particular period of time. b. The flow of the accounting cycle is shown in Figure 1.1.5 below. Figure 1.1.5 Accounting cycle 1.7 Phases in an accounting cycle Step 1 : Sources documents All business activities must be supported with documents as evidence of the business activities conducted. Different source documents are used for different kind of business activities. Step 2 : Books for prime entry Information such as name of customers or suppliers, date and amount written in the source document will be recorded in the books for prime entry such as the cash book and the journal. 6 Source Documents Journal Entry Ledger Posting Trial Balance Adjustments Adjusted Trial Balance Financial Statements Financial Reports
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Step 3 : Ledgers Entries or records from the books for prime entry are the posted to the various accounts in the ledger. The entries in the ledger accounts are based on the double entry system. Step 4 : Trial balance At the end of each month, the ledger accounts are closed and a trial balance is prepared. The purpose of preparing the trial balance is to determine the equality of debits and credits. If all the transactions are recorded correctly following the double entry system, the total debit balances must be equal to the total credit balances. It also a way to check the mathematical accuracy of the entries in the ledger. Step 5 : Adjustments Any business activities that occurs beyond the current accounting period will have to be adjusted. Step 6 : Adjusted trial balance Contains all the account balances created after the adjustment is made. Step 7 : Financial statements Balances from the adjusted trial balance will be used to prepare the financial statements. Financial statements consist of the statement of financial position. They are formal records of all the financial activities of a business in one accounting period. Step 8 : Financial Report The summary of business activities obtained from the financial statements will be presented in the form of a financial report. 7
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 1 Define accounting. ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Question 2 Bookkeeping is process that involve: Question 3 Rearrange the proper accounting process. • Summarizing 1)_____________________________ • Recording 2)_____________________________ • Interpreting 3)_____________________________ • Classifying 4)_____________________________ • Analyzing 5)_____________________________ Question 4 State TWO (2) internal users and external users for accounting information. Internal users External users 8 __________ __________ __________
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 5 List down TWO (2) Accounting principles. 1. ________________________________ 2. ________________________________ Question 6 Give THREE (3) Accounting constraints. 1. ________________________________ 2. ________________________________ 3. ________________________________ Question 7 Identify THREE (3) Accounting assumptions. 1. ________________________________ 2. ________________________________ 3. ________________________________ 9
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 8 Fill in the blanks. Accounting Bookkeeping ● ____________________ ____________________ ____________________ ● Requires a basic understanding and practice of financial accounting ● Accounting tasks are performed by accounting graduates or certified professional accountants. ● ___________________ ___________________ ___________________ • _____________________ _____________________ _____________________ ● Comprises only the simple accounting tasks in a financial department such as: - Issue bill from cash or credit activities - Record receipts from customers - Verify and record invoices from suppliers 10
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 9 Explain briefly the phases in an accounting cycle below. Step 1 :____________________________________________________ ____________________________________________________ ____________________________________________________ Step 3 :____________________________________________________ ____________________________________________________ ____________________________________________________ Step 5 :____________________________________________________ ____________________________________________________ ____________________________________________________ Step 7 :____________________________________________________ ____________________________________________________ ____________________________________________________ Question 10 List down EIGHT(8) accounting cycle. 1._________________________ 2._________________________ 3._________________________ 4._________________________ 5._________________________ 6._________________________ 7._________________________ 8._________________________ 11
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CHAPTER 2 : SOURCE DOCUMENTS 2.1 Source documents a. Documents that are issued or received by a business as evidence that the business activities had taken place. b. Used to record transactions because they are original and show an objective report of the business activities. c. Business transactions occur between buyers and sellers. d. Items that include in source documents are: • Transaction date • Documents type • Received/sent documents • Transaction details • Trasanction amount • Credit/cash transaction • Rules/information 2.2 Displays the documents used before business activities a. There are three source documents that involves before business activities occur which are enquiry letter, response letter and order form. Figure 2.2.1 Source documents used before business activities 12 Enquiry letter • Submit by the buyer to the seller for information items to be purchased. • Information required in the documents are prices, how supply, discount and payment methods. Response letter • Submit by the seller to the buyer as a reply to questions. • Information given are prices to be purchased, the delivery and payment method. Order form • Submit by the buyer to the seller that contains information about the items to be purchased. • Information needs are types of goods, brand, quantity, price, delivery terms, payment terms and discount rates.
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 2.3 Displays the documents used during business activities a. There are two source documents that involves during business activities occur which are delivery note and invoice. Figure 2.3.1 Source documents after before business activities 2.4 Displays the documents used after business activities a. There are eight source documents that involves during business activities occur which are cheque butt, receipts, voucher, memo, credit note, debit note, cash bill and account statements. 13 • Submit by the seller to the buyer with the items purchased. • It contains date, details of items delivered, amount of items in quantity, address of delivery, date of delivery and the name of the person in charge. • Buyer will checked the items in good conditions. Delivery Note • Issued by the supplier to the buyer. • An invoice is a document used by a supplier to request for payment of goods delivered to the buyer and used in credit transaction only. • It contains date, description of items, total amount to be paid, discount terms. Invoice
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY b. Table 2.4.1 below shows the source document types and usages. Source documents Usage Cheque butt Evidence that payment has been made by cheque Receipts Issue by seller to buyer for payment made by cash or cheque Voucher Used when payment has been made but a receipt is not given by the receiver of payment(seller) Memo Used as a notice when there is an increase in capital, drawing of product & money or other extraordinary event. Credit note Used to inform the buyer that his/her acct has been credited with the stated amount Usually issued when there is a sales return or when a sales price is over stated Debit note Used to inform the buyer that his/her has been debited with the stated amount Used when a sales price is understated Cash bills Issued by seller to buyer and used in cash transactions only. Account statements A summary of all the transactions between the company and the debtor/creditor and shows the (total) amount due by (or outstanding balance of) the debtor/creditor Table 2.4.1 Source document types and usages 14
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Tutorial Exercise Question 1 Define source documents. ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Question 2 Amira is the owner of a glassware shop in Seremban. The following are some business activities in October, 2019. Determine the source documents based on her activities. Business activity Source document Amira added more capital into her business. Amira paid the business electricity bill by cheque. Amira received an order from her customer for some sets of glassware. A customer settled her debt in cash. Amira received some goods from her customer due to broken items. Amira sent a notice to her customer for extra transportation charges. Amira bought new glassware as an inventory from the manufacturer by credit. 15
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 3 Identify source documents based on transactions given below. TRANSACTIONS SOURCE DOCUMENTS 1. Credit purchases 2. Cash purchases 3. Cash sales 4. Credit sales 5. Return inwards 6. Return outwards 7. Drawings by cheque 8. Drawings of assets 9. Drawings of goods 10.Customers paid their debts 16
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CHAPTER 3 : BOOKS OF PRIME ENTRY 3.1 Books of prime entry a. Transactions are initially recorded in chronological order in a journal before being transferred to the accounts. b. Books of prime entry or journal can be categorized into three types: i. General journal ii. Special journal iii. Cash book c. The function of the books of prime entry useful for investigating individual accounting transactions before accessed by the auditor in order to verify the business transactions were recorded correctly. d. Books of prime entry can be illustrated as Figure 3.1.1 below: Figure 3.1.1 Books of prime entry 17
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 3.2 General journal a. All transactions that cannot be recorded in any special journal, cash book or petty cash book will be recorded in the general journal. b. Characteristics of general journal : • Recording opening entries • Credit purchases of fixed assets • Credit sales of fixed assets • Recording drawings of goods • Recording drawings of fixed assets • Correcting errors • Adding asstes/capital into business • Recording closing entries. c. General journal format are below : Figure 3.2.1 General journal format 3.3 Special journal a. There are four types of special journals namely purchase journal, sales journal, purchase return journal and sales return journal. 18
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 3.3.1 Purchase journal a. To record purchases of goods on credit. Figure 3.3.1.1 Purchase journal format 3.3.2 Sales journal a. To record sales of goods on credit. Figure 3.3.2.1 Sales journal format 19
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 3.3.3 Sales return journal a. To record return of sales of goods on credit. Figure 3.3.3.1 Sales return journal format 3.3.4 Purchase return journal a. To record return of purchases of goods on credit. Figure 3.3.4.1 Purchase return journal format 3.4 Cash book a. A book of original entry used to record receipts and payments by cash and cheques. b. There are two types of cash book which are Two-column cash book and Three-column cash book. c. Characteristics of cash book : • Opening cash or bank balance (including overdraft) 20
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY • Receipts and payments by cash and cheque • Transfer of cash from the office to the bank and vice versa (contra entries) • Discounts received or discounts allowed • Dishonoured cheques (cancelling the discount given) • Closing cash or bank balance d. Format of cash book as shown below: Figure 3.4.1 Two-column cash book format Figure 3.4.1 Three-column cash book format 21
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Figure 3.4.2 Summary of books of prime entry 22
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 1 The following information was obtained from Kafe Santai accounting record for the months of January 2020. a) Prepare an appropriate journal. January Transactions 1 Cash in hand RM4,500 Cash at bank RM13,000 Inventory RM2,300 Overdraft RM2,500 Debtors RM2,400 Creditors RM3,400 4 Bought furniture from Ikea amounted RM3,000 for office use 7 Received invoice amounted RM3,500 from Najwa 11 Sold goods to Hakimi amounted RM2,151, discounted allowed 15% 13 Owner brought her own computer into the office worth RM3,000 16 Received credit notes from Najwa for returning goods worth RM200 18 Issued invoice to Anjung Holding for transaction worth RM12,000 20 Bought goods on credit from Sara Ali RM3,000 received 10% discount 23
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 2 Record the following transactions into the cash book. 24 2021 May Transactions 1 Cash balance RM250 and bank balance RM18,600. 2 Issued cheque RM110 for office use. 3 Issued cheque amount RM190 for personal use. 5 Paid to Raina RM480 by cheque. 7 Purchase stationery RM120 by cash for office. 9 Cash sales RM880 banked. 12 Purchase goods RM810 by cheque. 14 Cash sales RM280. 16 Paid RM30 cash for office maintenance. 22 Paid utility bills RM130 by cash. 26 Received cheque from Kedai Haikal amount RM385. 31 Paid office rental RM380 by cheque.
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Each transaction is recorded with at least One Debit One Credit Total DEBITS must equal total CREDITS. CHAPTER 4 : LEDGERS 4.1 Double Entry Concepts a. Each transaction must be recorded in at least two ledger accounts, with a debit to one or more ledgers and a credit to one or more ledgers. b. In a double-entry system, equal debits and credits are made in the accounts for each transaction. c. Thus, the total debits will always equal the total credits and the accounting equation will always stay in balance. 25
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 1 Ahmad opened up a fabrics selling business in September 2021. The following were transactions that occurred during the month. You are required to record below transactions in the ledger. Date Particulars RM Sept, 1 2 4 6 8 11 13 16 17 20 25 29 30 Contributed the following assets as business capital i. Cash; ii. Motor vehicles, and iii. Inventory. Credit purchase from Shu Enterprise. Cash sales. Payment for business insurance. Credit sales to ABC Ltd. Trade discount 5%. Cash drawings by Ahmad. Paid Shu Enterprise for full settlement with 10% discount. Paid for motor vehicle repair expenses. Drawing of goods by Ahmad’s wife. ABC Ltd. paid all its debts with 8% discount. Cash purchase of goods. Credits sales to Aliya Boutique. Trade discount 5%. Paid salary to employees. 30,000 15,000 3,800 9,500 7,820 350 4,700 300 150 2,500 1,700 5,100 1,000 26
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 2 Post the entries to relevant ledger accounts. January 2021 Transactions 1 Cash in hand RM250 Cash at bank RM18,600 2 Issued cheque RM110 for office used 3 Purchased stationery RM120 cash for office used 5 Paid cheque RM480 to Nadia and receive cash discount RM20 7 Took cash RM190 for personal use 9 Cash sales RM880 was banked in 12 Purchase goods by cheque RM810 14 Receive cheque RM385 from Kedai Almi and give cash discount RM15 16 Paid RM30 cash for repairing office photostate machine 19 Kedai Arifin paid cash RM310 and discount allowed RM20 in cash 22 Paid general expenses RM130 23 Issued cheque RM580 to Zuha BHD. and received RM20 cash discount 26 Cash sales RM280 31 Paid office rental RM300 cash 27
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CHAPTER 5 : TRIAL BALANCE 5.1 Trial Balance 28 a. A statement prepared based on account balances in the ledgers at the end of an accounting period. b. A/Cs with debit balances debit side c. A/Cs with credit balances credit side d. Total debit amount = Total credit amount
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY To prepare financial statements Functions of Trial Balance To check the accuracy of calculations To verify the accuracy of double entries To verify the accuracy of postings from the book to ledgers Figure 5.1 Functions of Trial Balance 29
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Assets Expenses Liabilities Accounts Revenues Owner’s Equity 5.2 Closing & Balance Off A/Cs a. All ledger accounts must be balanced before a trial balance is prepared. b. A ledger’s account is balanced by comparing the total debit amount with the total credit amount, and determining which amount is larger. 5.3 Chart of Accounts Figure 5.3 Chart of Accounts a. Revenues - Income earned from business activities through the selling of goods or providing services 30
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY - Examples: - Sales revenues - Commission received - Discount received - Rent received - Day book entry: Dr. Cash/Bank Cr. Revenues - Have a credit balance b. Expenses - Money that are paid or will be paid to operate a business - Examples: - Purchases of goods - Salaries & Wages - Discount allowed - Stationery expense - Day book entry: Dr. Expenses Cr. Cash/Bank - Have a debit balance c. Assets - Resources or properties used to help operate a business - Examples: - Land & Buildings - Motor Vehicle - Office Equipment - Cash - Debtors - Have a debit balance 31
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY d. Liabilities - Debts owed by a business entity to external parties - Examples: - Bank loan - Bank overdraft - Creditors - Have a credit balance e. Owner’s Equity - The business’ debts to the business owner based on the amount invested by the business owner - Examples: - Capital - Drawings - Profit or Loss - A/C Balance: - Capital – credit - Drawings – debit - Profit – debit - Loss – credit 32
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Figure 5.3.1 Debits and Credits Balance 33 Revenues Liabilities Owner’s Equity Expenses Assets
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 1 Below is account balances extracted from Restaurant Ridan Hill business transaction for the month of October 2021. Particulars RM Cash in hand 8,000 Cash at bank 30,000 Debtors 8,000 Machinery 40,000 Motor Vehicles 7,000 Furniture 9,000 Stock 3,300 Purchases 10,000 Insurance 8,300 Advertising 4,700 Drawing 800 Salaries 8,500 Sales return 1,300 Creditor 3,000 Mortgage loan 80,000 Capital ? Sales 17,000 Purchase return 1,000 You required preparing a trial balance as at 31 October 2021 for Restaurant Ridan Hill from the above information. 34
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 2 From the following list of ledger balances extracted from the books of Muadzam Jaya Bhd. on 31 January 2021, you are required to prepare the Trial Balance of Muadzam Jaya as at 31 January 2021. Transaction RM Capital 80,000 Cash 1,000 Furniture 20,000 Bank overdraft 15,000 Account receivable 25,000 Premises 60,000 Motor vehicles 40,000 Sales 45,000 Purchases 21,000 Salaries 5,000 Insurance on purchases 1,350 Interest on overdraft 2,650 Travelling expense 2,000 Water and electricity 2,000 Account payable 30,000 Rent revenue 10,000 35
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY CHAPTER 6 : FINANCIAL STATEMENT 6.1 Introduction a. Information obtained from the Trial Balance is used to prepare a financial statement with the purpose of evaluating the performance of an organization b. Financial Statement consists of Final Accounts and the Balance Sheet c. Final Accounts are the combination of : ▪ Trading Account ▪ Profit and Loss Account d. Final Accounts in the form of statement is known as Income Statement 36 Financial Statement Final Accounts Trading A/C Profit & Loss A/C Balance Sheet
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 6.2 Trading Account a. Trading Account is prepared to compute the gross profit or loss of the business. b. The followings are the formula of calculating the gross profit or loss : Gross profit/loss Net sales – Cost of sales Cost of sales Cost of goods sold – Closing stock Cost of goods sold Cost of purchases + Opening stock Cost of purchases Net purchases + Buying expenses Net purchases Purchases – Purchase return/return outwards Net sales Sales – Sales return/return inwards Figure 6.2.1 Trading Account 37 Trading Account for the year ending… RM RM RM Sales (-) Return inwards/sales return NET SALES Less: Costs of goods sold Opening inventory Purchases (-) Return outwards/purchase return Net Purchases Wages Packaging Import duties Insurance on purchases Freight inwards Costs of goods available for sale (-) Closing inventory Costs of sales GROSS PROFIT
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY BUSINESS NAME Income Statement For The Year Ending… RM RM RM Sales 12X (-) Return inwards/sales return (X) NET SALES Less: Costs of goods sold Opening inventory Purchases (-) Return outwards/purchase return Net Purchases Buying Expenses* Wages Packaging Import duties Insurance on purchases Freight inwards Cost of Purchase Costs of goods sold (-) Closing inventory Costs of sales GROSS PROFIT (+) Revenues Discounts received Interest received Commission received Rent received (-) Expenses Rent Salaries Freight outwards Discount allowed Advertising Insurances NET PROFIT/LOSS Figure 6.2.2 Income Statement 38
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY 6.3 Balance Sheet a. Balance Sheet is prepared to determine the business financial position at the end of accounting period. b. It is prepared according to all balances included in the asset accounts, equity accounts, and liability accounts at the end of accounting period after all balances of nominal account had been transferred into Profit and Loss A/C. c. Fixed Assets ▪ Consists of all assets obtained from a business to be used for several periods of time. ▪ Example : buildings, fixtures and fittings, office equipment and furniture. d. Current Assets ▪ All assets that will be used in one period of time. ▪ Example : stock, debtors, accrued revenues, prepaid expenses, cash at bank and cash in hand. 39
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY BUSINESS NAME Statement of Financial Position as at… Non-current assets: Land Premises Plant and machineries Motor vehicles Office equipments Fixtures and fittings Total non-current assets Current Assets: Inventory Account Receivable Prepayments Bank Cash Total current assets Total assets Owner’s equity: Capital Add Net profit Less Drawings Total equity Non-current liabilities: Mortgage Debentures Long-term provisions Current liabilities: Account payable Bank overdraft Accrued expenses Total liabilities Total equity and liabilities RM XX XX XX XX XX XX RM XX XX XX XX XX XX XX XX XX XX XX XX XX XX (XX) 3XX 3XX RM 6XX 5XX 11XX 5XX 6XX 11XX Figure 6.3 Balance Sheet 40
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Tutorial Exercise Question 1 The following Trial Balance was taken from Desa Travel & Tours as at 31 December 2021. Desa Travel & Tours Trial Balance as at 31 December 2021 Debit (RM) Credit (RM) Sales and Purchases 26,500 46,040 Returns 250 150 Discounts 550 650 Opening inventory 6,600 Debtors and Creditors 2,200 2,200 Capital 84,000 Drawings 320 Salaries 5,500 Commissions 280 360 Insurance 2,500 Rental 1,700 Cash 8,000 Bank 12,000 Motor vehicles 55,000 Fixtures and Fittings 12,000 133,400 133,400 41
PRINCIPLES ACCOUNTING FOR TOURISM & HOSPITALITY Additional information: i. Closing inventory is RM5,900. ii. Accrued rent is RM500. iii. Prepaid insurance is RM600. You are required to prepare: (a) Income Statement for the year ended 31 December 2021. (b) Balance Sheet as at 31 December 2021. 42