AC03:iBiz Software

Solutions
B215 Financial Accounting
Learning Objectives

Ensure the correct posting of T-accounts into ledger and correct usage of
language for posting on statement of financial position and profit and loss
items.

Explain how to use the T-accounts and journal entries to prepare a trial
balance.

Apply the mechanism of double-entry, T-account and journal entries in

recording transactions for the financial statements.

Demonstrate an understanding of the process and flow of accounting

data from the business transaction to the ledger.

Outline the form of accounting records in a typical manual system.

Outline the process and flow of steps taken in the system from initiation to
end i.e. the preparation of statement of financial position and profit and
loss statements.
What’s the Problem?

You have been tasked to prepare a report to
management to analyze the performance of the
company and show the financial position of the
company thus far.

Demonstrate an understanding of the appropriate

process for recording Nov’s and Dec’s transactions to
the ledger.

At the end of the process, you should be able to present

a summary of the balances in the T-accounts after the
second month of operations, and the Statement of
Financial Position and Statement of Comprehensive
Income.
Recap: Accounting Equation

Assets = Liabilities + Shareholders’ Equity

Duality of Effects: Every transaction affects at

least two accounts. It is critical to identify
correctly the accounts affected and the
direction of the effect.

The accounting equation must remain in

balance after each transaction.
What is a T-account?

An account is defined as a record of increases,
decreases and balances in an individual item of
asset, liability, owner’s equity, revenue or
expense.

The simplest account is known as the T-account
because it resembles the letter “T” as you can
see from an example below:
Cash
Debit Credit
Debits, Credits and T-accounts
Debit Credit
Assets + Expenses Liabilities + Capital +
Revenue

Assets and expenses Liabilities, capital and

are DEBIT in nature revenue are CREDIT in
nature
Any increase in assets Any increase in liabilities,
or expenses is a DEBIT capital or revenue is a
entry CREDIT entry
 Accounting Cycle
1. Perform transaction
analysis on each transaction.
2. Record journal entries for
each transaction (in
chronological order)
7. Record and post adjusting
and closing entries (to create
zero balances in temporary
accounts for use in the next
period). 3. Post amounts to the
general ledger.
6. Prepare financial
statements (from adjusted
balances).
4. Prepare a trial balance (a
list of accounts and balances
* To be covered in 5. Analyse adjustments (to to date) to verify the equality
other weeks. update all accounts for of debits and credits.
proper revenue recognition
and expense matching).*
Process of analysing and
recording transactions

This process is part of Accounting Cycle and consist of 3
components

Step 1: Analysing the Transactions

Step 2: Journalising the Transactions

Step 3: Posting the journals to the ledger accounts

After posting the journals, the new balance for each of the
accounts can be computed.

The summarised list showing all the account balances is known as
the Trial Balance.
Analysing the Transactions
Process of studying a transaction to determine its
economic effect on the entity in terms of the
accounting equation

Accounting Equation
Analysing the Transactions

Identify the accounts affected by the transaction and
classify them by type of account i.e. Asset, Liability or
Owners’ Equity

Determine the direction of the effect (increase or

decrease of account)

Verify that the accounting equation (A=L+OE) remains

in balance

The total dollar value of the debits in the transaction

should equal the total dollar value of the credits
Posting the journals to the
ledger accounts

Posting is simply debiting and crediting the
relevant accounts indicated in the journal
entries
What is the General Ledger?

General Ledger General Ledger

A record containing all accounts
used by a company. Asset
Accounts

Chart of Accounts
Liability
List of all accounts a company
Accounts
uses and includes an
identification number assigned
to each account. Equity
Accounts
Overview of Ledgers
Make up of x number of
Sales Ledger
Sub-ledgers
Purchases Make up of x number of
Summary of Ledger Sub-ledgers
following
General Ledger

ledgers Make up of x number of

Debtors Ledger
Sub-ledgers
Make up of x number of
Cash Ledger
Sub-ledgers
Make up of x number of
Fixed Assets
Sub-ledgers

Transactions
for ALL the For example, debtor ledger may show all
other transactions with all debtors. To find out
accounts how much XX Pte Ltd owns, a company will
look into the sub-ledger of XX Pte Ltd.
What is the Trial Balance?

A Trial Balance list all accounts with their balances
starting with the following accounts: Assets, Liabilities,
Owner’s Equity, Revenue and Expenses.

It show whether total debits equal total credits

It can be taken at any time but most commonly at the

end of the period

It is used as a basis to prepare the Financial

Statements
Stages in preparing financial
statements
Statement of
financial
position

T-accounts Trial Balance

Statement of
comprehensive
income

Financial statements are prepared using the T-accounts

in reality.

However in the classrooms, they are prepared from trial
balances for ease.

Trial balances are mainly used for checking in reality.
Closing Process

Closing process is an important step at the end of an
accounting period.

Prepares accounts for recording the transactions and the

events for the next period.

Steps in a Closing process:

1. Identify accounts for closing
2. Record and post closing entries
3. Prepare post-closing trial balance
Closing Process

Permanent accounts
o Generally consist of all statement of financial position accounts
o Not closed at end of period
o Balances are carried to the next period

Temporary accounts
o Include all statement of comprehensive income accounts,
withdrawal accounts and Income summary account
o Used to record transactions and events for that period
o Opened at start of accounting period with nil balance
o Closed at end of the period
 In an IT environment
A journal can Transaction A posting may
be directly require approval
posted to GL prior to being
instead of posted.
going through Journal
the sub-
ledgers.
May go through a Control account first

Ledgers/
Sub-ledger
Control accounts:
Transfer
Summary of individual
to GL accounts in a sub-ledger.

To check whether GL
balance agree with total
General Ledger
individual accounts in
(GL)
ledger.
Application to the Problem
In order to prepare the financial statements,
you have to

Write the journal entries for the transactions.

Post these entries to the general ledger.

Bring forward balances in the first month’s T-
accounts to the second month’s T-accounts.

Prepare the trial balance.
Journal Entries (Nov)
Journal Entries (Dec)
Ending November 2008
Ending November 2008
Beginning December 2008
Ending December 2008
Ending December 2008

Other payables

* - Note that the expenses T-account is a simplified version. Each of the

different expenses should have a T-account of its own so that it is easier
to find the exact balance for individual expenses.
Is everything brought forward
to the next month/year?

Statement of financial position items are brought forward
from one month to another, from one year to the next.

Statement of comprehensive income items are brought

forward from one month to another within the same
financial year, but not from one year to the next.

Eg. If a company has earned revenue of $100 by 31 Dec

20x8, the $100 does not get carried forward to 20x9.
Revenue starts from zero on 1 Jan 20x9.
Summary of Balances
Statement of Comprehensive
Income
Statement of Financial
Position
Conclusion

Financial Statements are prepared from a Trial
Balance.

A Trial Balance is a result of processes in the

accounting cycle.

One of the processes in creating the Trial Balance

involves the analysis of business transactions
expressed through the journal entries and updated
to the relevant accounts while ensuring that the
accounting equation is in balance.
Mindmap
Transactions

Journals

T-accounts /
Ledger

Description
Recap Closing
and dates

Statement of Statement of
Debits and Nature of
financial comprehensive
Credits accounts
position income
•Transfer to
•Bal. b/d
statement of
•Bal. c/d comprehensive
income
 Resources
Textbooks

Walter Harrison, Charles Horngren, Zubaidah Bte Ismail, Chng Chee Kiong, Fazilah
Samad and Mak Yuen Teen; Financial Accounting in Singapore and Malaysia; Prentice
Hall; 2005; Chapters 2.

Joel Lerner; Schaum’s Outline of Theory and Problems of Bookkeeping and Accounting
(4th Edition); McGraw-Hill; 2007; Chapters 2 and 3.

Robert Libby, Patricia Libby and Daniel Short; Financial Accounting (5th Edition);
Irwin/McGraw-Hill; 2007; Chapters 2, 3 and 4.

David Willis; Introductory Accounting (2nd Revised Edition); McGraw-Hill; 2006; Chapters
3 and 4.

Robert Libby, Patricia Libby and Daniel Short; Financial Accounting (3rd Edition);
Irwin/McGraw-Hill; 2001; Chapters 2 and 4

Betsy Li, Tan Sai Kim, Goh Ling Chin and Goh Lee Suan; Principles of Accounts (Fourth
edition); Federal Marshall Cavendish Education; 2006; Chapters 1 and 12.

Kermet D. Larson, John J. Wild and Barbara Chiappetta; Fundamental Accounting
Principles (17th Edition); Mc-Graw-Hill; 2005; Chapters 2 and 4.

Jay L. Jacquet and William C. Miller, Jr.; The Accounting Cycle: A Primer or Nonfinancial
Managers; Revised Edition; Thomason Course Technology; 2002; Chapers 1, 4, 6 and 7.

Frank Wood and Alan Sangster; Frank’s Wood’s business accounting 1; Tenth Edition;
FT Prentice Hall; 2005; Chapters 5, 6 and 31.
 Resources
Websites

Accounting Cycle; http://www.quickmba.com/accounting/fin/cycle/; Retrieved on 13 April
2009

Accounting; http://www.netmba.com/accounting/; Retrieved on 13 April 2009

Debits and Credits; http://www.accountingcoach.com/online-accounting-
course/07Xpg02.html; Retrieved on 13 April 2009

Trial Balance; http://www.netmba.com/accounting/fin/process/trial/; Retrieved on 13 April
2009

Accounting Cycle: Preparing a Trial Balance; http://www.college-
cram.com/study/accounting/presentations/725; Retrieved on 13 April 2009