1. 1.The need for book-keeping 2. The accounting equation 3. The double entry system for assets, liabilities and capital 4. The asset of stock 5. The double entry system for expenses and revenue Introduction to double entry system 6. Balancing off the accounts

2. Introduction to double entry accounting 1.The need for book-keeping

3. Introduction to double entry accounting 1.Recording Accounting Data RECORDS RECORDS e.g. Peter… Buildings Computer Motor Van

4. Introduction to double entry accounting 1.Recording Accounting Data RECORDS RECORDS 2.Classifying and summarising data ? We should put them in a systematical way! e.g. Chan’s family

5. Introduction to double entry accounting 1.Recording Accounting Data RECORDS RECORDS 2.Classifying and summarising data ? We should put them in a systematical way! 2.Classifying and summarising data 3. Communicating Information Profit? Loss? How can I know? Accountant I can tell you!

6. Introduction to double entry accounting 1.Recording Accounting Data RECORDS RECORDS 2.Classifying and summarising data 3. Communicating Information

7. Introduction to double entry accounting 1.Recording Accounting Data 2.Classifying and summarising data and summarising data 3. Communicating Information Accounting is the process of… the process of… What is book-keeping? book-keeping? Book Bookkeeping YES! NO! NO!

8. Introduction to double entry accounting 2. The Accounting Equation

9. Introduction to double entry accounting Capital, Assets and Liabilities What are they? e.g. S.Wong wants to open a fast food shop… $500 000 Desk and chair $160 000 Computers $40 000 Goods $210 000 $90 000 Cooker

10. Introduction to double entry accounting Capital, Assets and Liabilities Desk and chair Computers Goods Cooker Asset : The resources possessed by the firm

11. Introduction to double entry accounting Capital, Assets and Liabilities $500 000 Capital : The resources supplied by the owner

12. Introduction to double entry accounting Capital, Assets and Liabilities $500 000 Capital Assets Desk and chair Computers Goods Cooker $160000 $210000 $40000 $90000 + + + =

13. Introduction to double entry accounting Capital, Assets and Liabilities CapitalAssets = $500 000 Desks and chairs $160 000 Computers $40 000 Goods $210 000 $90 000 Cooker e.g. S.Wong want to open a fast food shop… e.g.One year later,S.Wong wants to expand his business… Extra Desks and chairs Extra goods

14. Introduction to double entry accounting Capital, Assets and Liabilities $500 000 e.g.One year later,S.Wong want to expand his business… Extra Desks and chairs Extra goods Desk and Chair Computer Goods Cooker Assets=Capital But no money left… What can he do? Borrow from bank! $100 000

15. Capital, Assets and Liabilities $100 000 Liabilities:The indebtedness of the firm for the resources Extra goods Extra Desks and chairs Assets: Introduction to double entry accounting

16. Capital, Assets and Liabilities $500 000 Capital AssetsLiabilities $100 000 Desk and Chair Computers Goods Cooker Extra goods Extra Extra Desks and chairs = + Introduction to double entry accounting

17. Capital, Assets and Liabilities Accounting Equation: Assets = Capital + Liabilities Introduction to double entry accounting

18. 3.The double entry system: Assets,liabilities and capital

19. Introduction to double entry accounting The Double Entry System e.g. Tai Hung has a habit of recording the money he spent. When he buys a CD… Cash - CD + Each transaction affects 2 items… We have to entertwice We have to enter twice… Double Entry System

20. Introduction to double entry accounting What is an account? Account Name Specify asset, capital or liability 2001$ $ Date DebitCredit

21. Introduction to double entry accounting How to process the double entry system? Assets = Capital + Liabilities 1.Double entry for ASSETS Jan 4 Bought motor van paying by cash $160 000. Recall: Motor Van Cash paying by cash $160 000 Bought motor van $160 000 2003$ $ Jan 4 Motor Van 160 000 Jan 4 Cash 160 000

22. Introduction to double entry accounting Assets = Capital + Liabilities 1.Double entry for ASSETS Jan 6 Sold motor van by cash $90 000. Motor Van Cash $90 000 2003$ $ Jan 6 Motor Van 90 000 Jan 6 Cash 90 000

23. Introduction to double entry accounting Assets = Capital + Liabilities 1.Double entry for ASSETS Conclusion: For ANY asset a/c + Increase - Decrease

24. Introduction to double entry accounting Assets = Capital + Liabilities 2.Double entry for Liabilities Jan 10 Bought machinery from L.Lo Ltd. on credit $93 000. L.Lo Ltd. Machinery $93 000 2003$ $ Jan 10 L.Lo Ltd. 93 000 Jan 10 Machinery 93 000 $93 000

25. Introduction to double entry accounting Assets = Capital + Liabilities 2.Double entry for Liabilities Feb 3 Paid L.Lo Ltd. $93 000 in cash. L.Lo Ltd. Cash $93 000 2003$ $ Feb 3 L.Lo Ltd. 93 000 Feb 3 Cash 93 000 $93 000

26. Introduction to double entry accounting Assets = Capital + Liabilities 2.Double entry for Liabilities Conclusion: For ANY liability a/c - Decrease + Increase

27. Introduction to double entry accounting Assets = Capital + Liabilities 3.Double entry for Capital Jan 1 The proprietor started business with $500 000 in cash. Capital Cash $500 000 2003$ $ Jan 1 Capital 500 000 Jan 1 Cash 500 000 $500 000

28. Introduction to double entry accounting Assets = Capital + Liabilities 3.Double entry for Capital Conclusion: Capital a/c - Decrease + Increase

29. Introduction to double entry accounting Conclusion for double entry system Assets = Capital + Liabilities Debit DebitDebit CreditCredit Credit + -

30. Introduction to double entry accounting The concept of Debtor and Creditor Debtor Creditor Business Goods When he has not paid the business money, he is a debtor. Business Goods When the business has not paid him the money, he is a creditor. he is a creditor.

31. Introduction to double entry accounting 4. The Asset of Stock

32. Introduction to double entry accounting Accounts for each type of dealing in goods Supplier Business Customer In the business point of view… Goods Purchases Sales

33. Introduction to double entry accounting Purchases Cash Purchases Credit Purchases Paid by cash or cheque immediately Paid for it later

34. Introduction to double entry accounting Assets = Capital + Liabilities 1.Double entry of Purchases of stock for Cash Aug 2 Goods costing $160 are bought by using cash. Cash Purchases $160 $160 $160 2003$ $ Aug 2 Cash 160 Aug 2 Purchases 160

35. Introduction to double entry accounting Assets = Capital + Liabilities 2.Double entry of Purchases of stock on credit Aug 4 Goods costing $160 are bought on credit from Wong. Wong Purchases $160 $160 $160 2003$ $ Aug 4 Wong 160 Aug 4 Purchases 160 $160

36. Introduction to double entry accounting Sales Cash Sales Credit Sales Receive cash or cheque immediately Receive it later

37. Introduction to double entry accounting Assets = Capital + Liabilities 1.Double entry of Sales of stock for Cash Aug 6 Goods are sold for $55,cash being received. Sales Cash $55 $55 $55 2003$ $ Aug 6 Sales 55 Aug 6 Cash 55

38. Introduction to double entry accounting Assets = Capital + Liabilities 2.Double entry of sales of stock on credit Aug 8 Sold goods on credit for $250 to K.Lee. Sales K.Lee $250 $250 $250 2003$ $ Aug 8 Sales 250 Aug 8 K.Lee 250

39. Introduction to double entry accounting Accounts for each type of dealing in goods Supplier Business Customer In the business point of view… Goods Purchases Sales Damaged goods Returns Outwards Damaged goods Returns Inwards

40. Introduction to double entry accounting Assets = Capital + Liabilities 1.Double entry for Returns Inwards F.Lo Returns Inwards $29 $29 $29 2003 $ $ Aug 5 F.Lo 29 Aug 5 Returns Inwards 29 Aug 5 Goods which had been previously sold to F.Lo for $29 are now returned by him.

41. Introduction to double entry accounting Assets = Capital + Liabilities 2.Double entry for Returns Outwards Returns Outwards K.Lo $96 $96 $96 2003 $ $ Aug 6 Returns Outwards 96 Aug 6 K.Lo 96 $96 Aug 6 Goods previously bought for $96 are returned by the firm to K.Lo.

42. Introduction to double entry accounting Summary Cash Purchases – Dr. Purchases Cr. Cash Credit Purchases – Dr. Purchases Cr. Supplier (Creditor) Cash Sales – Dr. Cash Cr. Sales Credit Sales – Dr. Customer (Debtor) Cr. Sales Returns Inwards – Dr. Returns Inwards Cr. Customer (Debtor) Returns Outwards – Dr. Supplier (Creditor) Cr. Returns Outwards

43. Introduction to double entry accounting 5. The double entry system for expenses and revenue

44. Introduction to double entry accounting What is revenue? Revenue is the sales value of goods and services that have been supplied to customers. e.g. Commission Received Rent Received

45. Introduction to double entry accounting What is expense? Expense is the value of all assets and costs that have been used to get those income. e.g. Motor Expenses Postage

46. Introduction to double entry accounting Assets = Capital + Liabilities Recall: Capital a/c - Decrease + Increase

47. Introduction to double entry accounting What is the relationship between expenses and capital? expenses and capital? ExpensesProfitCapital Capital a/c - + Any Expenses Debit

48. Introduction to double entry accounting Assets = Capital + Liabilities Examples on double entry Cash Rent $300 $300 $300 2003$ $ Aug 6 Cash 300 Aug 6 Rent 300 $300 Aug 6 The rent of $300 is paid in cash.

49. Introduction to double entry accounting Assets = Capital + Liabilities Examples on double entry Bank Motor Expenses $200 $200 $200 2003$ $ Aug 8 Bank 200 Aug 8 Motor Expenses 200 $200 Aug 8 Motor expenses are paid by cheque $200.

50. Introduction to double entry accounting What is the relationship between revenue and capital? revenue and capital? RevenueProfitCapital Capital a/c - + Any Revenue Credit

51. Introduction to double entry accounting Assets = Capital + Liabilities Examples on double entry Commission Cash $250 $250 $250 2003$ $ Aug 9 Commission 250 Aug 9 Cash 250 $250 Aug 9 $250 cash is received for commission earned by the firm.

52. Introduction to double entry accounting The concept of drawings Boss Can I take them away? One day…

53. Introduction to double entry accounting The concept of drawings No No… The money is processed by the company… But not the boss !

54. Introduction to double entry accounting The concept of drawings Boss If he wants to take the money… He can… But he should take it back later! Drawings

55. Introduction to double entry accounting Assets = Capital + Liabilities Recall: Capital a/c - Decrease + Increase

56. Introduction to double entry accounting What is the relationship between drawings and capital? drawings and capital? Drawings Capital Capital a/c - + Drawings Debit

57. Aug 10 The proprietor takes $460 cash out of the business for his own use. out of the business for his own use. Introduction to double entry accounting Assets = Capital + Liabilities Examples on double entry Cash Drawings$460 $460 $460 2003$ $ Aug 10 Cash 460 Aug 10 Drawings 460 $460

58. Introduction to double entry accounting 6. Balancing off the accounts

59. Introduction to double entry accounting Balancing an account How to do it? Bank 2004 $ May 3 Rent 300 May 6 Purchases 900 May 1 Capital 2000 May 8 Sales 1100 31001200 > May 31 Bal c/d 1900 3100 Jun 1 Bal b/d 1900

60. Introduction to double entry accounting Balancing an account Sales 2004 $ May 3 Bank 300 May 6 C.Wong 900 > May 31 Bal c/d 1200 1200 Jun 1 Bal b/d 1200

61. Introduction to double entry accounting Balancing an account Rent 2004 $ May 1 Bank 900May 31 Bal c/d 900 Jun 1 Bal b/d 900 K.Wo 2004 $ May 1 Sales 1900 May 21 Bank 1900

62. Introduction to double entry accounting The End