Why Record Transactions? To have a systematic recording of transaction  analyze  report to users Items that goes to Balance Sheet (Asset, Liability & Equity) – To know to financial position  how much your assets, the amount owe to others and the money that business owns (equity) Items that goes to Profit and Loss Statement (Sales, Sales return/return inward, Sales discount, Purchase, Purchase return/return outward, Expense) – Know the performance (profit and loss) for particular accounting period

How to record transaction? Identify the TWO (2) Items Give a appropriate name Identify the types of account – Balance sheet items – Profit and loss items Know the increase and the decrease Determine the debit and credit – Balance sheet items (always involve two side) – Profit and loss items (normally take one side) Post to appropriate Journal or Ledger  Trial Balance  Profit & Loss/ Balance Sheet

Examples: Balance Sheet Items (Asset) Buy an equipment by cash RM100 Equipment 1) Identify the TWO Items Cash

Examples: Balance Sheet Items (Asset)  Office Equipment 2) Give a appropriate name  Cash in Hand Buy an equipment by cash RM100 Equipment Cash

Examples: Balance Sheet Items (Asset) Office Equipment 3) Identify the types of account Cash in Hand = Asset Buy an equipment by cash RM100

Identify the type of these account Cash in Bank Bank Loan = Asset = Liability Capital = Equity Sale of Goods = Sales Salary/ Pay bill = Expense

Identify the type of these account Purchase goods = Purchase Return Inward/ Sale Return = Contra-sales Return Outward/ Purchase Return = Contra-purchase Sales Discount = Contra-sales Drawing = Contra-capital

Examples: Balance Sheet Items (Asset) Office Equipment 4) Know the increase and the decrease Cash in Hand = Asset Buy an equipment by cash RM100

Examples: Balance Sheet Items (Asset) Office Equipment 5) Determine the debit and credit Cash in Hand = Asset Debit Credit Buy an equipment by cash RM100

Determine debit and credit for the following: Asset Debit Credit Liability Credit Debit Capital Credit Debit

Determine debit and credit for the following: Sales Credit Return Inward/Sales Return Debit Purchase Debit Return Outward/Purchase Return Credit Sales Discount Debit Expense Debit

Examples: Balance Sheet Items (Asset) Dr Office Equipment RM100 6) Post to appropriate Journal or Ledger Cr Cash in Hand RM100 Buy an equipment by cash RM100 2 Jan 2012 (Buy an office equipment) Journal Entries

Examples: Balance Sheet Items (Asset) 6) Post to appropriate Journal or Ledger 2 Jan 2012 Cash in Hand RM100 Buy an equipment by cash RM100 Office Equipment 1 Jan 2012 Balance b/d RMxx Account Ledger

Only Balance Sheet Items has balance b/d or beginning balance Maybe why it is called BALANCE Sheet

Examples: Balance Sheet Items (Asset) 2 Jan 2012 Office Equipment RM100 6) Post to appropriate Journal or Ledger Buy an equipment by cash RM100 Cash in Hand 1 Jan 2012 Balance b/d RMxx Account Ledger

Trial Balance Cash Bank Car Equipment Inventory Purchase Return Inward Return Outward Sales Discount Expenses Sales Creditors Bank Loan Drawing Capital

Trial Balance Cash Bank Car Equipment Inventory (Purchase) (Return Inward) Return Outward (Sales Discount) (Expenses) Sales Creditors Bank Loan (Drawing) Capital

Trial Balance Cash Bank Car Equipment Inventory (Purchase) (Return Inward) Return Outward (Sales Discount) (Expenses) Sales Creditors Bank Loan (Drawing) Capital Profit

Trial Balance Cash Bank Car Equipment Inventory Creditors Bank Loan (Drawing) Capital Profit

BALANCE SHEET Cash Bank Car Equipment Inventory Creditors Bank Loan (Drawing) Capital Profit ASSETS LIABILITIES EQUITIES

PROFIT AND LOSS STATEMENT (Purchase) (Return Inward) Return Outward (Sales Discount) (Expenses) Sales Profit

PROFIT AND LOSS STATEMENT (Purchase) (Return Inward) Return Outward (Sales Discount) (Expenses) Sales Profit Cost of goods sold

WAIT ! WHAT ABOUT INVENTORY???

BALANCE SHEET Cash Bank Car Equipment Inventory Creditors Bank Loan (Drawing) Capital Profit ASSETS LIABILITIES EQUITIES

BALANCE SHEET Cash Bank Car Equipment Inventory Creditors Bank Loan (Drawing) Capital Profit ASSETS LIABILITIES EQUITIES Change in Inventory

BALANCE SHEET Cash Bank Car Equipment Inventory Creditors Bank Loan (Drawing) Capital Profit ASSETS LIABILITIES EQUITIES Change in Inventory

Trial Balance Cash Bank Car Equipment Inventory (Purchase) (Return Inward) Return Outward (Sales Discount) (change in inventory) Sales Creditors Bank Loan (Drawing) Capital Profit (Expenses)

PROFIT AND LOSS STATEMENT (Purchase) (Return Inward) Return Outward (Sales Discount) (Expenses) Sales Profit Cost of goods sold (Change in inventory)

We calculate Beginning Inventory – Ending Inventory to calculate Change in Inventory

Cost of goods sold Beginning Inventory plus: Purchase Less: Purchase return Less: Ending Inventory Cost of Goods Sold

PROFIT AND LOSS STATEMENT Beginning Inventory (Return Inward) + Purchase (Sales Discount) Less: Expenses) Sales Net Profit - Purchase Return Total Sales - Ending Inventory Less: Cost of goods sold Gross Profit (Cost of goods sold)