1. Recording Business Transactions – Double Entry Recording and Account Week 3

4. Major Account Classifications Assets are resources owned by the business. Liabilities are debts owed to outsiders (creditors). Cash Supplies Building Accounts receivable Accounts payable Notes payable Wages payable

5. Major Account Classifications Liabilities are debts owed to outsiders (creditors). Cash Supplies Building Accounts receivable Accounts payable Notes payable Wages payable Assets are resources owned by the business. Liabilities are often identified on the balance sheet by titles that include payable .

6. Owner’s equity is the owner’s right to the assets of the business. Revenues are increases in owner’s equity as a result of selling services or products. Chris, Capital Chris, Drawing Fees Earned Fares Earned Commission Revenue Expenses are the using up of assets or consuming of services to generate revenue. Rent Expense Salary Expense Utilities Expense Major Account Classifications

7. To assist you in learning, an account can be drawn to resemble the letter T.

8. The T-Account The T-account has a title. Cash

9. The T-Account The left side of the account is the debit side. Cash Left side debit

10. The T-Account The right side of the account is the credit side. Cash Left side debit Right side credit

11. The T-Account Dr Title of Account Cr Date Particulars Folio Amount $ Date Particulars Folio Amount $

12. The T-Account Cash John 3,750 Interest 4,300 Capital 2,900 Utilities 850 Supplies 1,400 Drawings 700 Creditors 2,900 Typical entries

13. Balancing a T-Account

14. Cash 3,750 4,300 2,900 850 1,400 700 2,900 First, foot the debit side. 10,950

15. 850 1,400 700 2,900 Cash 3,750 4,300 2,900 Next, foot the credit side. 10,950 5,850

16. 850 1,400 700 2,900 Cash 3,750 4,300 2,900 Subtract total credits from total debits to obtain the account balance. 5,100 10,950 5,850

17. Balancing The T-Account Cash John 3,750 Interest 4,300 Capital 2,900 10,950 Balance b/d 5,100 Utilities 850 Supplies 1,400 Drawings 700 Creditors 2,900 Balance c/d 5,100 10,950 Enter the balance amount as c/d at the end of period and b/d for the next period.

19. CASH Date Particulars Folio Debit $ Credit $ Balance $ 2/2 4/2 Revenue Interest income 100 50 100 150

23. Debits Credits Asset accounts………. Increase (+) Decrease (-) Liability accounts…… Decrease (-) Increase (+) Owner’s equity (capital) accounts…. Decrease (-) Increase (+) Rules of Debit / Credit Balance Sheet Accounts

24. Credit for increases (+) Credit for increases (+) Credit for decreases (-) Debit for increases (+) Debit for decreases (-) Debit for decreases (-) Balance Sheet Accounts ASSETS Asset Accounts LIABILITIES Liability Accounts Owner’s Equity Accounts OWNER’S EQUITY

25. Transactions and Accounts

26. (A) On November 1, Chris brings in cash RM25,000 to start a business in the name of NetSolutions. Effects of this entry in the account Cash Nov 1 Capital 25,000 Nov 1 Cash 25,000 Chris, Capital

27. Effects of this entry in the account Cash Nov 1 25,000 Nov 5 Land 20,000 Land Nov 5 Cash 20,000 (B) On November 5, NetSolutions bought land for RM20,000, paying cash.

28. (C) On November 10, NetSolutions purchased supplies on account for RM1,350. Effects of this entry in the account Supplies Nov 10 Acc. Payable 1,350 Accounts Payable Nov 10 Supplies 1,350

29. Cash Nov. 1 25,000 Nov. 5 25,000 18 7,500 30 3,650 Effects of this entry in the account Accounts Payable Nov. 10 1,350 Nov 30 Cash 950 30 Acc. Payable 950 (F) On November 30, NetSolutions paid creditors on account, RM950.

30. In every entry the sum of the debits always equal the sum of the credits.

31. Double-Entry Accounting “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is recorded on one side and what is given is on the other side. The T account is a representation of a scale of balance.” Luca Pacioli Developer of Double-Entry Accounting Scale of Balance Receive Give T account Receive Give

32. Take A Break!

34. CASH CAPITAL BACK Capital Jan 1 50,000 Cash Jan 1 50,000

35. OFFICE SUPPLIES ACCOUNT PAYABLE BACK A/C Payable Jan 3 2,300 Office Supplies Jan 3 2,300

36. OFFICE EQUIPMENT CAPITAL BACK Capital Jan 10 5,000 Office Equipment Jan 10 5,000 Cash Jan 1 50,000

37. ACCOUNTS PAYABLE CASH BACK Cash Jan 11 1,500 A/C Payable Jan 11 1,500 Office Supplies Jan 3 2,300 Capital Jan 1 50,000

38. OFFICE FURNITURE CASH BACK Cash Jan 20 3,000 A/C Payable Jan 11 1,500 Capital Jan 1 50,000 Office Furniture Jan 20 3,000

39. ACCOUNTS PAYABLE CASH BACK Cash Jan 11 1,500 Office Supplies Jan 3 2,300 A/C Payable Jan 11 1,500 Capital Jan 1 50,000 Office Furniture Jan 20 3,000 Cash Jan 29 800 A/C Payable Jan 29 800

40. BANK BANK LOAN Bank Loan Jan 30 100,000 Bank Jan 30 100,000

41. CASH A/C Payable Jan 11 1,500 Capital Jan 1 50,000 Office Furniture Jan 20 3,000 A/C Payable Jan 29 800 Balance c/d Jan 31 44,700 Balance b/d Feb 1 44,700 50,000 50,000

42. Office Equipment Jan 10 5,000 CAPITAL Cash Jan 1 50,000 55,000 55,000 Balance c/d Jan 31 55,000 Balance b/d Feb 1 55,000

43. OFFICE SUPPLIES ACCOUNTS PAYABLE A/C Payable Jan 3 2,300 2,300 2,300 Balance c/d Jan 31 2,300 Balance b/d Feb 1 2,300 Cash Jan 11 1,500 Office Supplies Jan 3 2,300 Cash Jan 29 800 2,300 2,300

44. OFFICE EQUIPMENT OFFICE FURNITURE 3,000 Capital Jan 10 5,000 5,000 5,000 Balance c/d Jan 31 5,000 Balance b/d Feb 1 5,000 Cash Jan 20 3,000 3,000 Balance c/d Jan 31 3,000 Balance b/d Feb 1 3,000

45. BANK BANK LOAN Bank Loan Jan 30 100,000 Bank Jan 30 100,000 100,000 Balance b/d Feb 1 100,000 100,000 Balance b/d Feb 1 100,000 100,000 100,000 Balance c/d Jan 31 100,000 Balance c/d Jan 31 100,000

48. Credit for increases (+) Credit for decreases (-) Debit for increases (+) Debit for decreases (-) Expense Accounts Revenue Accounts Rules of Debit / Credit Income Statement Accounts

49. Debits Credits Revenue accounts…… Decrease (-) Increase (+) Expense accounts…… Increase (+) Decrease (-) Income Statement Accounts

50. Effects of this entry in the account. Cash Nov. 1 25,000 Nov. 5 25,000 Fees Earned Nov 18 Cash 7,500 18 Fees 7,500 (D) On November 18, NetSolutions received fees of RM7,500 from customers for services provided .

51. Effects of this entry in the account. Cash Nov. 1 25,000 Nov. 5 25,000 Wages Expense Nov 30 Cash 2,125 18 7,500 Rent Expense Nov 30 Cash 800 Utilities Expense Nov 30 Cash 450 Miscellaneous Expense Nov 30 Cash 275 30 3,650 (E) Throughout the month, NetSolutions incurred the following expenses: wages, RM2,125; rent, RM800; utilities, RM450; and miscellaneous, RM275 .

57. CASH Revenue Feb 15 3,100 Capital Feb 1 25,000 Shop rental expenses Feb 1 1,000 Advertising expenses Feb 2 1,200 Salary expenses Feb 28 10,000 A/C Payable Feb 28 3,000 28,100 28,100 Balance c/d Feb 28 12,900 Balance b/d Mar 1 12,900

58. FURNITURE CAPITAL 20,000 Capital Feb 1 20,000 20,000 Balance c/d Feb 28 20,000 Cash Feb 1 25,000 Furniture Feb 1 20,000 45,000 45,000 Balance c/d Feb 28 45,000 Balance b/d Mar 1 20,000 Balance b/d Mar 1 45,000

59. BEAUTY SUPPLIES ACCOUNT PAYABLE -- KENT A/C Payable Feb 1 3,000 Beauty Supplies Feb 1 3,000 Cash Feb 28 3,000 3,000 3,000 3,000 3,000 Balance c/d Feb 28 3,000 Balance b/d Mar 1 3,000

60. SHOP RENTAL EXPENSES ADVERTISING EXPENSES Balance c/d Feb 28 1,000 Balance b/d Mar 1 1,000 Cash Feb 1 1,000 Cash Feb 2 1,200 1,000 1,000 1,200 1,200 Balance c/d Feb 28 1,200 Balance b/d Mar 1 1,200

61. ACCOUNT RECEIVABLE 10,300 10,300 Balance c/d Feb 28 10,300 Revenue Feb 15 5,000 Return Inwards Feb 26 500 Revenue Feb 24 2,200 7,200 7,200 Balance c/d Feb 28 6,700 Balance b/d Mar 1 6,700 Balance b/d Mar 1 10,300 A/C Receivable Feb 24 2,200 Feb 15 A/C Receivable 5,000 Cash Feb 1 3,100 REVENUE

62. RETURN INWARDS SALARY EXPENSES Account Receivable Feb 26 500 Cash Feb 28 10,000 500 500 10,000 10,000 Balance c/d Feb 28 10,000 Balance c/d Feb 28 500 Balance b/d Mar 1 500 Balance b/d Mar 1 10,000

63. Withdrawals by the Owner

64. 30 950 30 Drawings 2,000 Cash Nov. 1 25,000 Nov. 5 25,000 18 7,500 30 3,650 Effects of this entry in the Ledger Chris, Drawing Nov. 10 1,350 Nov 30 Cash 2,000 (G) On November 30, Chris withdrew RM2,000 in cash from NetSolutions for personal use.

65. Increase (Normal Balances) Decreases Balance sheet accounts: Asset Debit Credit Liability Credit Debit Owner’s Equity: Capital Credit Debit Drawing Debit Credit Income statement accounts: Revenue Credit Debit Expense Debit Credit Normal Balances of Accounts

66. Flow of Business Transactions 1 Transaction authorized 2 Transaction takes place 3 Document prepared 4 Entry recorded in journal 5 Entry posted to ledger

67. Lecture Exercise 3 The account balances as at the end of April 06 for Sean Enterprise are as follows: Accounts RM Cash 48,500 Accounts Receivable 76,700 Stock 750 Accounts Payable 26,000 Sean, Capital 113,050 Sean, Drawing 19,500

68. CASH CASH ACCOUNTS RECEIVABLE STOCK Balance b/d May 1 48,500 Balance b/d May 1 76,700 Balance b/d May 1 750

69. ACCOUNTS PAYABLE SEAN, CAPITAL SEAN, DRAWING Balance b/d May 1 26,000 Balance b/d May 1 113,050 Balance b/d May 1 19,500

71. STOCK ACCOUNTS PAYABLE Back Balance b/d May 1 750 Balance b/d May 1 26,000 A/C Payable May 1 1,700 Stock May 1 1,700

72. CASH ACCOUNTS RECEIVABLE Back Balance b/d May 1 48,500 Balance b/d May 1 76,700 A/C Receivable May 3 67,900 Cash May 3 67,900

73. INSURANCE EXPENSES CASH Back Cash May 5 350 Balance b/d May 1 48,500 A/C Receivable May 3 67,900 Insurance expenses May 5 350

74. ACCOUNTS PAYABLE RETURN OUTWARDS Back Balance b/d May 1 26,000 Stock May 1 1,700 A/C Payable May 11 500 Return Outwards May 11 500

75. ADVERTISING EXPENSES CASH Back Cash May 15 3,800 Balance b/d May 1 48,500 A/C Receivable May 3 67,900 Insurance expenses May 5 350 Advertising expenses May 15 3,800

76. CASH ACCOUNTS PAYABLE Back Balance b/d May 1 48,500 A/C Receivable May 3 67,900 Insurance expenses May 5 350 Advertising expenses May 15 3,800 Balance b/d May 1 26,000 Stock May 1 1,700 Return Outwards May 11 500 A/C Payable May 17 14,800 Cash May 17 14,800

77. CASH OFFICE RENT EXPENSES Back Balance b/d May 1 48,500 A/C Receivable May 3 67,900 Insurance expenses May 5 350 Advertising expenses May 15 3,800 A/C Payable May 17 14,800 Cash May 21 4,500 Rent expenses May 21 4,500

78. ACCOUNTS RECEIVABLE SALES Back Balance b/d May 1 76,700 Cash May 3 67,900 A/C Receivable May 23 91,900 Sales May 23 91,900

79. SEAN, DRAWING CASH Back Balance b/d May 1 19,500 Balance b/d May 1 48,500 A/C Receivable May 3 67,900 Insurance expenses May 5 350 Advertising expenses May 15 3,800 A/C Payable May 17 14,800 Rent expenses May 21 4,500 Drawing May 27 4,500 Cash May 27 4,500

80. SALARIES AND COMMISSION EXPENSES CASH Back Cash May 31 61,200 Balance b/d May 1 48,500 A/C Receivable May 3 67,900 Insurance expenses May 5 350 Advertising expenses May 15 3,800 A/C Payable May 17 14,800 Rent expenses May 21 4,500 Drawing May 27 4,500 Salaries & Commissions May 31 61,200