Outline
Accounting concepts
Accounting equation
Chart of Accounts
Debits and Credits
Double entry accounting
Accounting equation and analysis
ACCOUNTING
CONCEPTS
The business is accounted for separately from other business entities, including its
owner.
The reason for this principle is that separate information about each business is
necessary for good decisions.
Monetary Unit
Growing Concern
Time Period.
The economic life of business can be divided into artificial time period for the
purpose of financial reporting.
Historical Cost
Cost is measured on a cash or cash equivalent basis. It means if cash is given for a
service, its cost is measured as the amount of cash paid.
If something besides cash is exchanged (such as a car traded for a truck), cost is
measured as the cash value of what is given up or received.
The historical cost principle emphasizes reliability, and information based on cost
is considered objective.
Revenue Recognition
Recognized early, a company would look more profitable than it is & recognized
too late, a company would look less profitable than it is.
Revenue Recognition
the ownership has been transferred from the seller to the buyer (sale of
goods);
2.
3.
4.
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Matching or Accrual
It means that expenses are matched against revenues, and recorded in the same
period in which the related revenues are earned.
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Full Disclosure
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Materiality
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Materiality
Now, other person has supplied and need to be repaid. This is called as liability.
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Assets are economic resources owned by a company and that have expected future
benefits such as buildings, machinery, stocks, debtors, cash and bank balances.
Liabilities consist of money owing for goods supplied or services provided to the firm,
such as loans and creditors.
Capital is often called the owner's equity or net worth; claim on a company's assets.
Equity is the owners residual interest in the assets of a business after deducting
liabilities.
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Revenues are what the business earns for providing goods or services.
Expenses are the cost of assets the business uses to generate revenues (payroll,
depreciation, rent, utilities, and taxes)
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How It Works?
John is a sole trader. He seeking your help on how to apply the accounting
equation for the following transactions:
He invested RM100,000 into the business.
He borrows RM50,000 from the bank to buy a van.
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Solutions
Assets
(RM)
Liabilities
(RM)
Owners Equity
(RM)
100, 000
100,000
50, 000
50,000
150,000
50,000
100,000
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Chart of Accounts
No.
System
101-199
small
business might
Accounts Category
201-299
Liability
301-399
Equity
401-499
Revenue
501-599
Expense
A
use
the
following
numbering
system for its accounts:
Asset
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2.
3.
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(Account Title)
(Debit)
(Left side)
(RM) (Credit)
(RM)
(Right side)
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The difference between total debits and total credits, including any beginning
balance, is the account balance.
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When the sum of debits exceeds the sum of credits, the act has a debit balance.
It has a credit balance when the sum of credits exceeds the sum of debits.
When the sum of debits equals the sum of credits, the account has a zero
balance.
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Double Entry
It requires that each transaction affect, and be recorded in, at least two
accounts.
It also means the total amount debited must equal the total amount credited
for each transaction.
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Double Entry
Asset
Debit for
Increases
Liability
Credit for
Decreases
Debit for
Decreases
Credit for
Increases
Owners
Equity
Debit for
Decreases
Credit for
Increases
Double Entry
Net increases or decreases on one side have equal net effects on other side.
Second, the left side is the normal balance side for assets, and the right side is
the normal balance side for liabilities and equity.
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Investment by owner
0
+ 0
32
0
+ 0
33
34
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