Introduction to Basic Accounting

JABATAN PERDAGANGAN, POLITEKNIK SEBERANG PERAI introduction to basic accounting suriani binti abdul wahab

BASIC ACCOUNTING AND DOUBLE ENTRY SURIANI BINTI ABDUL WAHAB 2023 JABATAN PERDAGANGAN, POLITEKNIK SEBERANG PERAI ©All rights reserved for electronic, mechanical, recording, or otherwise, without prior permission inwriting from Politeknik Seberang Perai.

Basic Accounting eBook | ii All rights reserved No part of this publication may be translated or reproduced in any retrieval system, or transmitted in any form or by any means, electronic, mechanical, recording, or otherwise, without prior permission inwriting from Politeknik Seberang Perai. Published by Politeknik Seberang Perai Jalan Permatang Pauh, 13500 Permatang PauhPulau Pinang ISBN : 978-967-2774-34-1 Suriani Abdul Wahab, author. BASIC ACCOUNTING AND THE DOUBLE ENTRY / SURIANI BINTI ABDUL WAHAB 2023 Politeknik Seberang Perai, Electronic books -- Tel : 04-538 3322 Fax : 04-538 9266 Email : [email protected] Website : www.psp.edu.my FB : politeknikseberangperai Ig : politeknikseberangperai

Basic Accounting eBook | iii Acknowledgement I am really grateful and thankful to Almighty God for making this effort possible. I would like to thanks to all who contributed either directly or indirectly towards completion of this book. This eBook cannot be completed without the effort and cooperation from PSP eBook team community, Head of Department of Commerce Department and Head of DAT Programme. Last but not least, I would like tothank all of my colleagues in Commerce Department for their support and sharing of their knowledge to assist in the completion of this eBook. SURIANI BINTI ABDUL WAHAB

Basic Accounting eBook | iv Preface Basic Accounting and Double Entry provide knowledge on basic elements, methods and procedures used in basic financial accounting. This knowledge will enhance student ability to prepare double entry concepts and ledger. The objective of writing this book to prepare students with basic accounting understanding especially in accounting categorised, accounting equation and the double entry concepts. Most of the materials in this book were develop to fit polytechnic syllabus.

Basic Accounting eBook | v Table of Content 01 INTRODUCTION TO ACCOUNTING • Definition of Accounting & Bookkeeping • Describe the roles of an accountant • The importance of financial accounting • Users of Accounting Information • Types of accounting fields • Accounting standard are used in Malaysia • Basic Accounting Concepts 02 ACCOUNTING CLASSIFICATION • Account Categories • What is Asset? • What is Liabilities? • What is Owner Equity? • What is Revenue? • What is Expenses? 03ACCOUNTING EQUATION • What is Accounting Equation? • Apply accounting equation in business transaction 04ACCOUNTING CYCLE & SOURCE DOCUMENT • Accounting Cycle? • Source Document? • The types and usage of source documents • The types of books of prime entry • How to record transaction into Cash book and Journal? 05DOUBLE ENTRY CONCEPTS • What is Double Entry? • The double entry concepts • Posting to ledger

Basic Accounting eBook | 1 01 INTRODUCTION TO ACCOUNTING

Basic Accounting eBook | 2 INTRODUCTION TO ACCOUNTING Definition of Accounting Accounting is the process of classifying, recording and summarizing business transactionsin monetary and interpreting the financial data of a business. CLASSIFYING RECORDING ACCOUNTING SUMMARISING ANALYSING INTERPRETING> DECISION MAKING Definition of Bookkeeping Bookkeeping is the process of classifying, recording and summarizing business transactions Distinguish between accounting and bookkeeping: 1. Accounting consists wide coverage than bookkeeping 2. Accounting includes the process of recording, reporting and translating financial information in order to assist management team in decision making. Accounting alsoarranging and controlling business activities. 3. Bookkeeping only involving on process of recording, which is record all the monetary transactions systematically. The records of transactions are based on double entry.

Basic Accounting eBook | 3 CONCLUSION: Describe the roles of an accountant An accountant is based in the finance department and carries out all tasks of an accounting cycle. These tasks include the process of collecting recording, analyzing and presenting the financial operations and performance of the business to potential users. An accountant may also carry out tasks such as: 1. Designing and controlling systems of financial records 2. Preparing accounts and tax returns 3. Auditing financial information 4. Applying his/her expertise to provide financial advice 5. Compiling, analysing and presenting information 6. Dealing with third parties 7. Writing financial reports 8. Set up accounting practices and procedures for new companies and advise onhow to manage these. 9. Analyse budgets and other financial information and advice where savings could bemade. 10. Help to produce budgets for businesses and implement strategies for cost savings. 11. Ensure company accounts and tax returns are prepared and filed correctly and ontime. ACCOUNTING BOOKKEEPING wider

Basic Accounting eBook | 4 The importance of financial accounting Financial statements provide various financial information that investors and creditors use to evaluate a company's financial performance. For any business and for the people who run it, the importance of accurate financial statements cannot be underestimated. Accounting information can provide a picture of the financial position of a company or business. The objectives of recording and analyzing accounting information are as follows: 1. To identify the financial position of an organization, that is whether it is making a profitor a loss and the necessary follow-up actions that should be taken 2. To ensure that transactions are recorded for future reference. 3. Management’s responsibility in a large organization may be complicated if transactions are not recorded accurately. Financial statements may provide an inaccurate description of the business. Users of Accounting Information USERS DISCRIPTION OF USERS EXAMPLES Internal Use Internal users of accounting information can be defined as individuals: • Inside a business • Who use the information for day- to-day business decision Management As user’s financial information as a guideline to plan, organize and control the organization, analyses the performance of the business Finance department Financial manager enables to evaluate the ability of the organization or company to payits business debts and expenses Marketing department Financial information is used as guideline to determine the policies and the price of the products to be marketed Business owners Business owners need to know the expected rateof return obtained from investments, the financial position and the growth rate of the business during a particular period. Owners use this financial information to make decisions.

Basic Accounting eBook | 5 External Users External users of accounting information canbe defined as: • Individua ls or other firms/instituitions outside a business Who are not involve in thedayto-day business operation or decisions Banks/Financial institutions Bank or financial institutions need to know the abilityof a company or business to repay loans or debts Suppliers and creditors Financial information enables suppliers toevaluate the company’s ability to pay its debts. Government Government bodies for example the Internal Revenue Board (LHDN) refers to accounting statements and financial reports in order to determine the amount of tax to be paid. Employee unions An employee union uses financial information to ensure that their demands to the employer such as salary increments and other benefits are reasonable compared with the company’s financial ability. Potential shareholders Actual investors use this information to knowhow their funds are used by the management and what is the expected performance of business in future in terms of profitability and growth. On the basis of this information, they decide whether to increase or decrease investment in corporation in future. Potential investors use accounting information to decide whether or not a particular corporation is suitable for their investment needs.

Basic Accounting eBook | 6 Types of accounting fields Involves recording and categorizing transactions for business. This data is generally historical, meaning it’s from the past. It also involves generating financial statements based on these transactions. All financial statements, such a balance sheet and income statement, must beprepared according to the generally accepting accounting principles (GAAP). Most commonly used in the manufacturing industry, an industry that has a lot of resources and costs to manage. It is a type of accounting used internally to assess a company’s operations. Cost accounting concerns itself with recording and analyzing manufacturing costs. It looks at a company’s fixed (unchanging and constant costs, like rent) and variable costs (changing costs, like shipping charges) and how they affect a business and how these costs can be better managed. This type of accounting provides data about a company’s operations to managers. The focus of managerial accounting is to provide data that managers need to make decisions about a business’s operations, not comply strictly with GAAP. Managerial or management accounting includes budgeting and forecasting, cost analysis, financial analysis, reviewing past business decisions and more. Financial Accounting . Cost Accounting . Management Accounting .

Basic Accounting eBook | 7 There are two types of auditing: external and internal auditing. In external auditing, an independent third party reviews a company’s financial statements to make sure they are presented correctly and comply with GAAP. Internal auditing involves evaluating how a business divides up accounting duties, who is authorized to do what accounting task and what procedures and policies are in place. Internal auditing helps a business zero in on fraud, mismanagement and waste or identify and control any potential weaknesses in its policies or procedures. Involves planning for tax time and the preparation of tax returns. This branch of accounting aides’ businesses be compliant with regulations set up by the Inland Revenue Board of Malaysia. Tax accounting also helps businesses figure out their income tax and other taxes and how to legally reduce their amount of tax owing. Tax accounting also analyses tax-related business decisions and any other issues related to taxes. Auditing . Tax accounting .

Basic Accounting eBook | 8 What accounting standard are used in Malaysia? Entities generally are required to prepare their financial statements according to Malaysian Financial Reporting Standards (MFRS) equivalent to IFRS, except for private entities that continue to follow Private Entity Reporting Standards (PERS) for financial statements with annual periods beginning before 1 January 2020. The Basic of Accounting Concepts Rules of accounting that should be followed in preparation of all accounts and financial statements. Malaysian Institute of Accountants(MIA) Malaysian Accounting Standards Board (MASB) Accounting Regulatory bodies in Malaysia Companies Commission of Malaysia Inland Revenue Board Accounting concept refers to the basic assumptions and rules and principles which work as the basis of recording of business transactions and preparing accounts.

Basic Accounting eBook | 9 Basic of accounting concepts Historical cost concept Accounting transactions records based on cost value or the price recorded base on the date bought/ actual price stated in the source documents. It is the original cost of obtaining an asset or liability Prudence concept Prudence is a key accounting principle which makes sure that assets and income are not overstated and liabilities and expenses are not understated. Prudence could be used as a synonym for the concept of conservatism. Consistency concept The same accounting method will be used from one accounting period to another accounting period. Accrual concept Accrual concept is the most fundamental principle of accounting which requires recording revenues when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid. Matching concept All the expenses and revenue must be reported within the accounting period

Basic Accounting eBook | 10 Money measurement concept All transactions are recorded based on country’s monetary unit. E.g: Every transaction in Malaysia using RM Going concern concept The going concern concept of accounting implies that the business entity will continue its operations in the future and will not liquidate or be forced to discontinue operations due to any reason Objectivity concept All transactions must be recorded based on evidence or verified and unbiased information Materiality The materiality concept state that all material items must be properly reported in financial statements. An item is considered material if its inclusion or omission significantly impacts the decision of the users of financial statements. The items that have very little or no impact on a user’s decision are termed as immaterial or insignificant items. In short, we can say that if an item does not make a difference, it need not be disclosed Business entity concept The separate entity concept is the basic accounting concept that we should alwaysseparately record the transactions of a business and its owners. Otherwise, there is a considerable risk that the transactions of the two will become intermingled. E.g.: Owner cannot use company’s money from personal purposes. Periodicity (time period) concept Periodicity assumption states that the life of a business can be divided into equal time periods. These time periods are known as accounting periods for which companies prepare their financial statements to be used by various internal and external parties. The length of accounting period to be used for the preparation of financial statements depends on the nature and requirement of each business as well as the need of the users of financial statements. Normally, an accounting period consists of a quarter,six months or a year.

Basic Accounting eBook | 11 02 ACCOUNTING CLASSIFICATION

Basic Accounting eBook | 12 Account Categories In accounting, the accounts are classified using one of two approaches – modern approachor traditional approach. We shall describe modern approach because this approach of classification of accounts isused in almost every advanced country. The use of traditional approach is very limited. According to modern approach, the accounts are classified into 5 categories: What is Assets? An item of property owned by a person or company, regarded as having value and available tomeet debts, commitments, or legacies. Things that are resources owned by a company and which have future economic value thatcan be measured and can be expressed in money. Examples include cash, investments, accounts receivable, inventory/stock, supplies, land,buildings, equipment, and vehicles. Asset Liability Owner Equity Revenue or Income Expenses or Expenditure

Basic Accounting eBook | 13 Asset is divided into two, there are: Non Current Asset Current Asset

Basic Accounting eBook | 14 NON-CURRENTS ASSETS CURRENT ASSET • Lifetime is longer than 1 year • Fixed value • Can be used repeatedly E.g: Land and premises, motor vehicle, machine, office equipment, fixtures andfitting, fixed deposit, investment and etc. • Lifetime usually within than 1 year or less • Assets that are easily converted intocash • Value is not fixed E.g: Cash in hand, cash at bank, account receivable/debtors, inventories, prepaidexpenses, accrued revenues

Basic Accounting eBook | 15 What is Liabilities? A liability is company obligation or debts to other parties outside of the business/ company.Common example of a liability is accounts payable. Accounts payable arise when a company purchases goods or services on credit from a supplier. When the company pays the supplier, the company's accounts payable is reduced. Other common examples of liabilities include loans payable, bonds payable, interest payableand income taxes payable. Non currents liabilities Current liabilities Debts that must be paid off after 1 year/accounting period. E.g: Bank loan, Debentures, Mortagage, Debts that must be paid off within 1 year/accounting period. E.g: Account payable/creditors, Bank overdraf, accrued expenses, prepaid revenue

Basic Accounting eBook | 16 What is Owner's equity? Owner's equity is one of the three main components of a sole proprietorship's balance sheet and accounting equation. Owner's equity represents the owner's investment in the business minus the owner's draws or withdrawals from the business plus the net income (or minus the net loss) since the business began. The component in formula is like this: Owner's equity is viewed as a residual claim on the business assets because liabilities have a higher claim. Owner's equity can also be viewed (along with liabilities) as a source of the business assets. What is Revenues? Revenues are the amounts that a business earns from selling goods or providing services to itscustomers. CAPITAL - DRAWING + PROFIT @ - LOSS For example, a retailer's revenues will include its sales of merchandise, a law firm revenue will include the fees it earns from providing legal services to its clients, and a bank's revenues will include the interest that it earns on the loans to borrowers.

Basic Accounting eBook | 17 Revenues are often sorted into two categories: What is Expenses? An expense is a cost that occurs as part of a company's operating activities during a specifiedaccounting period. Interest paid Rental paid Bad debt EXPENSES EXAMPLES Advertising Water & Electricity Salary Operating revenues Operating revenues certain to a company's main activities For example, a retailer's operating revenues could include sales of merchandise, sales of extended warranties, and repair revenues. Non-operating revenues Non-operating revenues pertain to a company's incidental activities This means that a retailer's non-operating revenues will include the interest and the rent that it earns on its investments.

Basic Accounting eBook | 18 Expenses are often divided into two major classifications: Example 1 Classify the following items into the categorized given. NO. ITEMS ASSET LIABILITY EQUITY EXPENSES REVENUE 1 LAND AND BUILDING / 2 DEBTORS / 3 CREDITORS / 4 OFFICE EQUIPMENT / 5 UTILITIES / Operating expenses Operating expenses involve a company's main activities For example: 1) the cost of goods sold 2) the selling, general and administrative expenses. The company may further sort these expenses by department, product line, and so on Non-operating expenses Non-operating expenses pertain to a company'sincidental activities A common non- operating expense for a retailer is interest expense, interest on loan

Basic Accounting eBook | 19 Example 2 Classify the following items into assets, liabilities, equity, revenue, or expenses NO. ITEM ANSWER 1 MORTGAGE Liabilities 2 ADDITIONAL CAPITAL Equity 3 COMMISSION PAID Expenses 4 SALES Revenue 5 MACHINE Asset Tutorial / Exercise Question 1 Classify the following items into the correct categorized. NO. ITEMS ASSET LIABILITY EQUITY EXPENSES REVENUE 1 FIXTURES AND FITTING 2 BANK OVERDRAFT 3 BANK LOAN 4 DRAWING 5 DISCOUNT ALLOWED 6 REPAIRS & MAINTENANCE 7 STOCK 8 STATIONERY

Basic Accounting eBook | 20 Question 2 Classify the following item into the categorized given. No Item Non Current Asset Current Asset Revenue Expenses 1 WAGES AND SALARIES 2 CASH AND BANK 3 MOTOR EXPENSES 4 DISCOUNT RECEIVED 5 INTEREST ON LOAN 6 FURNITURE 7 MOTOR VEHICLE 8 PLANT AND MACHINERY Question 3 Classify the following items into Non-Current Assets, Current Asset, NonCurrent Liabilities,Current Liabilities, Owner Equity, revenue or expenses NO. ITEM ANSWER 1 INTEREST ON FIXED DEPOSIT 2 RENTAL RECEIVED 3 RENTAL PAID 4 PURCHASES 5 ADVERTISING 6. INVENTORY 7. FIXTURES & FITTING 8. OFFICE EQUIPMENT 9. DEBTOR 10. CREDITOR

Basic Accounting eBook | 21 03 ACCOUNTING EQUATION

Basic Accounting eBook | 22 What is the Accounting Equation? The accounting equation is a basic principle of accounting and a fundamentalelement of balance sheet. The equation is as follows: This equation sets the foundation of double-entry accounting and highlights the structureof the balance sheet. Double-entry accounting is a system where every transaction affects both sides of the accounting equation. For every change to an asset account, there must be an equal change to a related liability or 0wner equity account. It is important to keep the accounting equation in mind when performing journal entries. The balance sheet is broken down into three major sections and their various underlyingitems: Assets, Liabilities, and owner’s Equity Let's take a look at the accounting equation to illustrate the double entry system. Here is theequation with examples of how debits and credit affect all of the accounts. Assets Liabilities + Owner equity

Basic Accounting eBook | 23 • Assets = Liabilities + Owners Equity • Assets – Liabilities = Owners Equity • Assets – Owners Equity = Liabilities

Basic Accounting eBook | 24 Watch this video to enhance your understanding about this subtopic: Video link for this subtopic: https://youtu.be/ dbhZSrTdFlU Example 1 Given Liabilities RM55,000 and Capital RM30,000, how much is your Assets? Answer Assets = Liabilities + Capital RM 85,000 = RM55,000 + RM30,000 Given Assets RM 100,000 and Liabilities RM 30,000, Owners Equity? Answer Assets – Liabilities = Owners Equity RM 100,000 – RM 30,000 = RM 70,000

Basic Accounting eBook | 25 Given Assets RM 80,000 and capital is RM 20,000, calculate the liabilities value Answer Assets – Owners Equity = Liabilities RM 80,000 – RM 20,000 = RM 60,000 Tutorial / Exercise Question 1 Calculate the basic accounting equation Assets Liabilities Owners Equity RM40,000 RM10,000 ? RM60,000 ? RM40,000 ? RM20,000 RM35,000 Question 2 a. Given Assets RM36,000 and Capital RM20,000, how much is the liabilities? b. Given Liabilities RM128,000 and Owner’s Equity RM56,000, how much is theassets?Question 3 Calculate the value missing items Assets(RM) Capital(RM) Liabilities(RM) 70,000 ? 23,500 ? 23,500 75,800 120,400 Question 4 70,000 ? a. Given Assets RM46,270 and Capital RM25,000, how much is the liabilities? b. Given Liabilities RM123,255 and Owner’s Equity RM66,000, how much is the assets? c. Given assets RM125,350 and Liabilities RM45,550, how much is the capital?

Basic Accounting eBook | 26 Apply accounting equation in business transaction Example 2 Purchasing a Machine with Cash and Credit Answer: equation Answer:

Basic Accounting eBook | 27 Tutorial / Exercise Read carefully the below transactions given and show the effect to the accounting equation: a. Owner brought in RM10000 into a business as starting capital. b. Purchase furniture with cheque amount RM2000 c. Purchase motor vehicle amount RM5000 by credit from Autocar Enterprise. d. Sold old office equipment and received cash RM800 e. Sold goods value RM1200 by credit to Humairah Collection.

Basic Accounting eBook | 28 04 ACCOUNTING CYCLE & SOURCE DOCUMENT

Basic Accounting eBook | 29 Accounting cycle? Accounting cycle is the financial process starting with recording business transactions and leading up to the preparation of financial statements. This process demonstrates the purpose of financial accounting--to create useful financial information in the form of general-purpose financial statements. Source documents? Source documents are the physical basis upon which business transactions are recorded.Source documents are typically retained for use as evidence when auditors later review acompany's financial statements, and need to verify that transactions have, in fact, occurred. They usually contain the following information: ▪ A description of a business transaction ▪ The date of the transaction ▪ A specific amount of money ▪ An authorizing signature Many source documents are also stamped to indicate an approval, or on which to write down the current date or the accounts to be used to record the underlying TRANSACTION ADJUSTMENT & FINANCIAL STATEMENT SOURCE DOCUMENT ACCOUNTING CYCLE TRIAL BALANCES ACCOUNTING BOOKS & JOURNAL LEDGER

Basic Accounting eBook | 30 transaction. A source document does not have to be a paper document. It can also be electronic, such as an electronic record of the hours worked by an employee, as entered into a company's timekeeping system through a smart phone. The types and usage of source documents Invoices - a commercial document that itemizes a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal,and provide information on the available methods of payment. An invoice is also known as a bill or sales invoice. Cash bills - It is a document that indicates that the cash has been received from the purchaserof goods. It is proof of cash payment made What is difference between cash memo or Cash Bill and Invoice?

Basic Accounting eBook | 31 Cash bill/memo Invoice It is a document issued by the seller to the purchaser When buyer make a payment in cash It is a document issued by the seller to the purchaser when buyer purchased goods on credit It made at the time of payment It is prepared prior to payment as it is to show credit purchased It shows cash sales It shows credit sales In this payment is received In this payment is due Cash Memo Use for cash Payment Invoice words uses for on making a Request for Payment. What is difference between Debit notes and Credit notes?

Basic Accounting eBook | 32 Debit notes Credit notes The document provides information to notify the increase of certain amount ofsales previously charged to the customer. The documents used by the supplier to notify the reduction of certain amount of sales previously charged to the customer. The customer’s debt will be increased by the amount stated on the debit note. The reasons for debiting the account are given as below: - The amount stated in the invoice has been understated - Additional charge has been imposed by the supplier - Interest is charged to the customer due to late repayment by the customer The customer’s debt will be reduced bythe amount stated on the credit note. The reasons for issuing a credit note are: - The customer return inventory tothe supplier - The amount written on the earlier invoice has been overstated by supplier. What is difference between Receipt and Payment Voucher?

Basic Accounting eBook | 33 Receipts Vouchers These are documents confirming that cash or goods have been received. Receipts thus normally relate to paymentthat has been made by cash or through a debit or credit card. A payment voucher is a document usedby a customer to support payment madeby cheque or cash. It is issued by the customer to the supplier. What is the difference between Cheque and Cheque butt ? only the recipient named is able to cash the cheque at a

Basic Accounting eBook | 34 The types of books of prime entry Journal is also called the Book of Prime or Original Entry or First entry. The purposes of Journal are as follows: Records in one place the complete effects of transaction Provides a chronological record of transaction Helps to prevent or locate errors because the debit and credit amounts for each entry could be readily compared The types of book of first entry /journal: Book of first entry Transaction recorded Purchases journal/ day book Credit purchases of goods Sales journal /day book Credit sales of goods Return inwards/sales returnjournal Return of sales good Return outward/ purchasesreturn Journal Return of purchase good Cash book (2 column & 3 column) Cash or cheque receipts and payment General day book All other transactions that cannot be recorded in any special day book, cash book or petty cash Example 1 State which book of prime entry/ journal relevance to those transactions. Below are transaction of Tutty Fruity Trading: Journal Started the business with the cash in bank Cash book Owner brought in own cash as additional capital General Journal Purchase goods on credit from YuYu Corner Purchase Journal Paid all debt to YuYu Corner by cheque. Cash book Pay repairs expenses by cheque Cash book Purchase vehicle on credit from Yoyo Enterprise General Journal Cash sales Cash book Sold goods to Yam Shop on credit Sales journal

Basic Accounting eBook | 35 Tutorial / Exercise 1. Match the transactions given with the appropriate sources of documents. Transactions Documents Answer 1. Cash Sales Original Receipt and Cheque Butts 2. Received cash from Debtor Cheque Butts, payment voucher 3. Payment to Account payable by cash Receipt 4. Paid the rental, wages and bill by cash Cash Bill Received 5. Credited Purchase Sales Invoice 6. Credited Sales Debit Note 7. Purchases Return/Return Outwards Credit Note 8. Sales Return/Return Inwards Purchase Invoice 2. Stated which journal relevance to those transactions. No. Transactions Source documents True False a. Credit purchases Invoice issued b. Cash sales Invoice received c. Drawing of goods/assets Memos d. Pay to Account payables Payment vouchers e. Received payment from Account receivable Official receipts f. Return outwards Credit notes received g. Pay by cheques Cheque butts h. Credit sales Invoice issued i. Discount allowed Debit notes j. Return inwards Debit notes issued

Basic Accounting eBook | 36 3. Stated which journal relevance to those transactions. Below are transaction of ABC Furniture Company: Journal 1 Started the business with the bank 4 Purchase goods on credit from Syawal Enterprise 6 Purchase second hand van on credit from Nana 8 Sold goods to Ramadhan & Co. on credit 15 Cash sales 16 Bought furniture on credit from Ita Enterprise 20 Paid all debt to Syawal Enterprise by cheque. 28 Pay rental by cheque Example 2 Jun 2020 DDY Enterprise transactions. 1 Started a business with cash Rm5000 and bank Rm5000 2 Purchased a office equipment RM10000 from Dshop Bhd on credit. 3 Received an invoice amount RM5500 from Supplier MIMI. 4 Sold goods on credit to Seroja Ent amounted Rm3700. 11 Owner took cash from bank account Rm750 for his own used. 15 Transferred cash from bank Rm1000 to company cash account. 25 Received credit notes Rm500 from Supplier MIMI because of faulty goods. 29 Seroja Ent paid Rm3600 and the balance of the amount is a discount. You are required to prepared cash book and relevance journal. Solution: Step 1: Decide the journal related 1 Started a business with cash Rm5000 and bank Rm5000 Cash book 2 Purchased a office equipment RM10000 from Dshop Bhd on credit. General Journal 3 Received an invoice amount RM5500 from Supplier MIMI. Purchase Journal 4 Sold goods on credit to Seroja Ent amounted Rm3700. Sales Journal

Basic Accounting eBook | 37 11 Owner took cash from bank account Rm750 for his own used. Cash book 25 Received credit notes Rm500 from Supplier MIMI because of faulty goods. Return Outwards Journal 29 Seroja Ent paid Rm3600 and the balance of the amountis a discount. Cash book Step 2: Record all item in the journal according its format. Dt Cash book ( 3 column) Ct Date Item Discoun t allowe d Cas h (Rm ) Ban k (Rm ) Date Item Discoun t receive d Cas h (Rm ) Ban k (Rm ) Ju n1 Capital 5000 5000 Ju n11 Drawing 750 29 SerojaEnt 100 3600 30 Balanc ec/f 8600 3250 100 8600 5000 - 8600 5000 July 1 Balanc eb/f 8600 3250 General Day book/Journal Date Items Dt (RM) Ct (RM) Jun 2 Office equipment 10000 Dshop Bhd 10000 10000 10000 Purchases Day book/Journal Date Items Fol. Amount (RM) Jun 3 Supplier Mimi 5500 Total (RM) 5500 Sales Day book/Journal Date Items Fol. Amount (RM) Jun 4 Seroja Ent 3600 Total (RM) 3600 Return Outwards Day book/Journal Date Items Fol. Amount (RM) 25/6 Supplier MIMI 500 Total (RM) 500

Basic Accounting eBook | 38 Watch this video to enhance your understanding about this subtopic: How to record transaction into Cash book and Journal? https://www.youtube.com/watch?v=qYjNE1ZuOYc https://youtu.be/s-tGJAEC-Ls

Basic Accounting eBook | 39 Tutorial / Exercise 1. Spark Trading is a groceries wholesaler that commerce a business on 1st July 2021. Below arethe transaction for the month of July 2021. July 2021 Transactions 1 Started a business with cash RM3000 and bank RM100000 2 Purchased a motor vehicle RM80000 from Car Enterprise on credit for office use 3 Received an invoice RM44700 from Maximum Bhd for goods purchased 4 Sold goods on credit to Aman Enterprise amounted RM25000. Trade discount 10%. 11 Owner took cash RM1000 for own use 15 Received credit notes RM 600 from Maximum Bhd because of damagedofgoods returned. 23 Transferred cash from bank RM1000 for office use. 29 Imran, the owner of the business brought in his computer RM 2400 for office use. You are required to record the above transaction of July 2021 in appropriate books of first entry. 2. Zackry, a furniture distributor had the following transaction in June 2021. June 2021 Transactions 5 Commenced business with cash in hand rm5000 and cash at bank RM100000 6 Bought cupboards worth rm2200 paid by cheque. 8 Purchased stationery worth rm200 by cash. 10 Paid rent for rm650 by cheque. 12 Cash sales for rm6000, bank in the amount on the same day. 15 Took rm150 study table for own use. 18 Purchased shelves, tables and chairs for rm17000 and paid by cheque 21 Paid carriage outwards by cash for rm150 24 Bought vehicle on credit from Suria Motor worth rm30000 27 Brought in furniture from his house for business use worth Rm800 28 Paid salary of rm1200 by cash. You are are required to record the above transaction in the cash book.

Basic Accounting eBook | 40 3. Below are the transactions of Hassan Book Store Sdn Bhd in March 2022. Date Transactions Mac 2022 1 Balance brought forward of this month is cash in hand RM6000 and cash at bank RM14000 6 Bought book racks worth RM3000 paid by cheque. 8 Bought vehicle on credit from UMW Motor worth RM45000 10 Purchased stationery for office use worth RM350 by cash 11 Paid shop rental for RM1000 by cheque. 12 Cash sales for RM2000 was bank in on the same day 15 Took books and magazine RM100 for own use 18 Purchased shelves and tables for RM7000 and paid by cheque 21 Paid advertisement expenses by cash for RM500 25 Paid water and electricity bills RM850 by cash 27 Owner brought in computer from his house for business use worth RM1200 28 Paid staff salary RM3000 by cash. You are required to record the above transaction in the 3-column cash book.

Basic Accounting eBook | 41 05 DOUBLE ENTRY CONCEPTS

Basic Accounting eBook | 42 What is Double Entry? Double entry accounting, also called double entry bookkeeping, is the accounting systemthat requires every business transaction or event to be recorded in at least two accounts. This is the same concept behind the accounting equation. Every debit that is recorded mustbe matched with a credit. In other words, debits and credits must also be equal in everyaccounting transaction and in their total. Every modern accounting system is built on the double entry bookkeeping concept because every business transaction affects at least two different accounts. For example, when a company takes out a loan from a bank, it receives cashfrom the loan and also creates a liability that it must repay in the future. Thissingle transaction affects both the asset accounts and the liabilities accounts. The Double-Entry Concepts Account categorized Increase Decrease Normal balance ASSET Debit Credit Debit LIABILITIES Credit Debit Credit OWNER EQUITY Credit Debit Credit REVENUE/ INCOME Credit Debit Credit EXPENSES Debit Credit Debit

Basic Accounting eBook | 43 Watch this video to enhance your understanding about this subtopic: https://youtu.be/esMfETHp69o

Basic Accounting eBook | 44 How to identify account involve in the transaction and its double entry? Example 1 Indicate which account that will be debited and which account that will credited. i. Purchases by cheque Purchase is Expenses and increase. >>> Debit Cheque refer to bank account and is current assets and decrease >>> Credit Answer: Debit: Purchase account Credit: Bank account ii. Purchases goods on credit from ZaZa Enterprise Purchase is expenses and increase>>> Debit Zaza Enterprise is creditor, a liability and also increase >>> Credit Answer: Debit: Purchase account Credit:Zaza Enterprise_ iii. Credit sales to JaJa Bhd Jaja Bhd is debtor a current asset >>> Debit Sales is revenue and increase >>> Credit Answer: Debit: Jaja Bhd Credit: Sales Account iv. Received cheque from JaJa Bhd to pay off her account Cheque refer to bank account and it’s an increase in current asset >>> Debit Jaja Bhd as a debtor in current asset and decrease because make a paymentof the debt >>> Credit Answer: Debit: Bank Account_ Credit:Jaja Bhd v. Owner took cash for own use. Drawing account is incurred because “for own use” and increase >>> Debit Cash is current asset and decrease >>> Credit Answer: Debit:_Drawing Account Credit: Purchases Account_