Lesson 1 Basic Accounts

BACHELOR OF SCIENCE IN BACHELOR OF SCIENCE IN OPTOMETRYOPTOMETRY

BASIC ACCOUNTANCYBASIC ACCOUNTANCY(OPTOZC 112)(OPTOZC 112)

LESSON 1LESSON 1INTRODUCTION TO BASIC INTRODUCTION TO BASIC

ACCOUNTINGACCOUNTING

NATIONAL INSTITUTE OF OPHTHALMOLOGY

LESSON 1LESSON 1 INTRODUCTION TO BASIC ACCOUNTINGINTRODUCTION TO BASIC ACCOUNTING

LEARNING OBJECTIVESLEARNING OBJECTIVES

At the end of the chapter, you should be able to:At the end of the chapter, you should be able to:

trace the development of accounting;trace the development of accounting; state the difference between book-keeping and state the difference between book-keeping and

accounting;accounting; state the functions of book-keeping and accounting;state the functions of book-keeping and accounting; describe briefly the types of business units;describe briefly the types of business units; describe briefly the accounting cycle;describe briefly the accounting cycle; understand various commonly used accounting understand various commonly used accounting

terms.terms.


BOOK-KEEPING AND ACCOUNTING:BOOK-KEEPING AND ACCOUNTING:

BOOK-KEEPINGBOOK-KEEPING is defined as a process of recording is defined as a process of recording business transactions accurately and systematically business transactions accurately and systematically according to certain set rules. according to certain set rules. Examples of business activities such as purchases of goods, Examples of business activities such as purchases of goods,

sales of goods and collections and payments of debt sales of goods and collections and payments of debt In accounts, these business activities are termed transactions In accounts, these business activities are termed transactions

and since all information was recorded in books, hence we and since all information was recorded in books, hence we get the term book-keeping.get the term book-keeping.

ACCOUNTINGACCOUNTING involves the process of recording involves the process of recording business transactions accurately and systematically, i.e. business transactions accurately and systematically, i.e. book-keeping. book-keeping. The accounting information is thus classified for the The accounting information is thus classified for the

preparation of financial reports. preparation of financial reports. The business transactions and accounting reports are further The business transactions and accounting reports are further

processed to analyzing and interpreting to enable the processed to analyzing and interpreting to enable the business make decisions and plans for the future.business make decisions and plans for the future.


FUNCTIONS OF BOOK-KEEPING AND FUNCTIONS OF BOOK-KEEPING AND ACCOUNTINGACCOUNTING

Book-keeping and accounting serve the same purpose in that Book-keeping and accounting serve the same purpose in that both portray an accurate financial picture of a business entity. both portray an accurate financial picture of a business entity. Their functions include:Their functions include: Providing proof that a business transaction has taken place;Providing proof that a business transaction has taken place; Recording, classifying and summarizing business transactions in Recording, classifying and summarizing business transactions in

monetary unit systematically;monetary unit systematically; Supplying information regarding all assets and liabilities of the Supplying information regarding all assets and liabilities of the

entity so that the financial standing of the entity can be ascertained entity so that the financial standing of the entity can be ascertained at any fixed time;at any fixed time;

Supplying all information regarding the expenses and revenues of Supplying all information regarding the expenses and revenues of the entity.the entity.

Accounting plays a further role in that it provides all this Accounting plays a further role in that it provides all this information by recording, classifying, reporting, analyzing and information by recording, classifying, reporting, analyzing and interpreting business transactions and activities. Such interpreting business transactions and activities. Such information will enable the owner to make decisions and take information will enable the owner to make decisions and take appropriate actions for the future betterment of the business.appropriate actions for the future betterment of the business.

Difference between Book-Keeping & Difference between Book-Keeping & AccountingAccounting


TYPES OF BUSINESS UNITSTYPES OF BUSINESS UNITS

Characteristics Sole Proprietorship

Partnership Limited Companies

Private Ltd Public Listed

1. No. of members One Between 2-20. In special cases the maximum members can be 50.

Between 2-50 Minimum 2 and no maximum

2. Source of capital Owner Partners Shares issued to a restricted group of shareholders

Shares issued to the public

3. Liability Unlimited – the liability of the owner is not limited to the amount of capital invested

Unlimited except if the partnership is stated limited partners

Limited – limited to the amount invested in the company

4. Relationship between owner(s) and business entity

Legally the business is not separated from the members

The business is a legal entity separated from its members

5. Ownership transfer Through sale of business

Consent from all partners required

Shares can be only transferred with the consent of all shareholders

Shares can be freely transferred


ACCOUNTING CYCLEACCOUNTING CYCLE(1)

Source Documents

(2)Books of

Prime Entry

(3)Ledger

(4)Trial Balance

(5)Balance Day Adjustments

(6)Closing Entries

(9)Financial

Report

BOOK-KEEPING

•Bookkeepers are responsible in safeguarding the completeness and accuracy of the book of accounts

•Involves Process 1 - 6

ACCOUNTING

•Represent the whole accounting process, from recording until interpreting financial information.

•Accounting is diversified professions –financial accounting, managerial accounting, tax accounting, auditing,


ACCOUNTING CYCLEACCOUNTING CYCLE

1. Source Documents. 1. Source Documents. The source documents are the original The source documents are the original

record of a transaction. During an audit, record of a transaction. During an audit, source documents are used as evidence source documents are used as evidence that a particular business transaction that a particular business transaction occurred. occurred.

Examples of source documents include: Examples of source documents include: cash receipts, customer invoices, supplier cash receipts, customer invoices, supplier invoices, purchase orders, deposit slips, etc.invoices, purchase orders, deposit slips, etc.

ORIGINAL INVOICE Inv.No: 1476

Nu Office-Tech EnterpriseLot.DO14, Tingkat Bawah

Kompleks Karamunsing88882 Kota Kinabalu, Sabah

Tel : 088-865434 Fax : 088-864343

To: Date : 3 Sep, 2009

Farmasi Pro-Care Sefuwan Order No: 0A/018No.A01, Tingkat BawahWisma SEDCO, Blok A89200 Papar, Sabah

No DetailsQuantit

y

UnitPrice(RM)

Total Price(RM)

123

HP Intel PCHP LaserjetEZ Acc S/Ware

111

2100.001200.002000.00

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Less : Trade Discount 5300.00

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(Ringgit Malaysia : Five thousand three hundred only)

Terms & Conditions: 5% 10 daysCarriage : FOBE & O. E

Safuwan .Received by:

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2. Books of Original/Prime Entry. 2. Books of Original/Prime Entry. The documents are then classified and The documents are then classified and

posted to the appropriate posted to the appropriate books of books of original/prime entryoriginal/prime entry. .

Prime entry books include: Prime entry books include: Cash Book and Cash Book and Journals Journals

Journal Proper/General Journal, Journal Proper/General Journal, Purchase Journal, Purchase Journal, Sales Journal, Sales Journal, Purchase Returns Journal and Purchase Returns Journal and Sales Returns Journal.Sales Returns Journal.


ACCOUNTING ACCOUNTING CYCLECYCLE

3. The Ledgers. 3. The Ledgers. The entries done in Prime Entry books The entries done in Prime Entry books

are thus transferred to are thus transferred to ledgersledgers. .

Ledgers are books of accounts where Ledgers are books of accounts where records from the journal are classified records from the journal are classified and posted. and posted.

Books of ledgers include: Books of ledgers include: General Ledger (for all Assets, General Ledger (for all Assets,

Liabilities, Revenues and Expenses Liabilities, Revenues and Expenses Accounts), Accounts),

Purchases Ledger (ledger records of Purchases Ledger (ledger records of creditors) and creditors) and

Sales Ledger (ledger records of Sales Ledger (ledger records of debtors).debtors).

DR GENERAL LEDGERCAPITAL ACCOUNT

CR

Date Details F Amount Date Details F Amount2008 2008

Jan 31 Balance c/d 10,000 00 Jan 1 Cash 10,000 00

10,000 00 10,000 00

Feb 1 Balance b/d 10,000 00



4. Trial Balance 4. Trial Balance From the records in the Ledger, a From the records in the Ledger, a Trial Trial

BalanceBalance is extracted to check the is extracted to check the accuracy of the double-entry system. accuracy of the double-entry system.

If the journal entries are error-free and If the journal entries are error-free and

were posted properly to the ledger or were posted properly to the ledger or inversely the ledger entries were to be inversely the ledger entries were to be error-free, the total of all of the debit error-free, the total of all of the debit balances should equal the total of all of balances should equal the total of all of the credit balances. the credit balances.

If the debits do not equal the credit, the If the debits do not equal the credit, the an error has occurred somewhere in the an error has occurred somewhere in the process. process.

MAJU JAYA SDN. BHD TRIAL BALANCE AS AT 28TH. FEB, 2013

Serial Nos

Particulars Folio Debit(RM)

Credit(RM)

CA01 Cash in Hand CB01 800

CA02 Cash at Bank CB02 8 450

FA03 Furniture GL01 1 350

OE01 Capital, 1st Mar 2007 GL02 16 000

E001 Drawings GL03 1 250

E002 Purchases GL04 8 450

E003 Wages GL05 1 500

R001 Sales GL06 5 000

E003 Commission paid GL07 100

R002 Interest received GL08 150

CA03 Accounts Receivable : Ong & Co

DL01 550

CL01 Accounts Payable : Chan Bros CL01 1 300

22 450 22 450



5. Balance Day Adjustments 5. Balance Day Adjustments The adjustments are done to comply with the The adjustments are done to comply with the Accrual ConceptAccrual Concept. . This concept requires that expenses incurred for a particular accounting period should be This concept requires that expenses incurred for a particular accounting period should be

reckoned in the same period, irrespective of the fact whether these expenses have been paid in reckoned in the same period, irrespective of the fact whether these expenses have been paid in cash or not in that year. cash or not in that year.

The same holds true for revenues, i.e., revenues earned in a specific accounting period are The same holds true for revenues, i.e., revenues earned in a specific accounting period are construed as incomes of the same period, irrespective of their receipts.construed as incomes of the same period, irrespective of their receipts.

6.6. Closing EntriesClosing Entries This is the stage where all adjustments are finalized and all accounts are closed to This is the stage where all adjustments are finalized and all accounts are closed to

Trading and Profit Loss Accounts. Trading and Profit Loss Accounts. The preparation of these accounts are to determine the profits and losses incurred by the firm in The preparation of these accounts are to determine the profits and losses incurred by the firm in

that accounting period.that accounting period.



7. Financial Reports7. Financial Reports The last stage are preparations of The last stage are preparations of financial financial

statements or financial reportsstatements or financial reports. Financial . Financial statements (or financial reports) are formal statements (or financial reports) are formal records of a business' financial activities. records of a business' financial activities. Financial statements provide an overview of a Financial statements provide an overview of a business' financial condition in both short and business' financial condition in both short and long term. long term.

There are four basic financial statements: There are four basic financial statements:

Income StatementIncome Statement : also referred to as : also referred to as Profit and Loss statement (or a "P&L"), Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, reports on a company's income, expenses, and profits over a period of time. and profits over a period of time.

Balance SheetBalance Sheet : also referred to as : also referred to as statement of financial position or condition, statement of financial position or condition, reports on a company's assets, liabilities, reports on a company's assets, liabilities, and net equity as of a given point in time. and net equity as of a given point in time.

Statement of retrained earningsStatement of retrained earnings: explains : explains the changes in a company's retained the changes in a company's retained earnings over the reporting period. earnings over the reporting period.

Statement of cash flowsStatement of cash flows: reports on a : reports on a company's cash flow activities, particularly company's cash flow activities, particularly its operating, investing and financing its operating, investing and financing activities. activities.

FAIRMANINCOME STATEMENT FOR THE YEAR ENDING AT 30th . JUN, 2013

Sales 71 500Sales Returns (900)(Net Sales) 74 000

Less: COST OF GOODS SOLD:Opening Stock 13 500Purchases 51 150Purchases Returns (400)(Net Purchases) 50 750Carriage Inwards 1 100

65 350Closing Stock (14 300

(51 050)GROSS PROFIT 19 550

Add : Other Revenues:Discounts Received 680Commissions 1 350

2 030(Total Income) 21 580

Less: General & Administrative Expenses: Wages 8 000 Community Chest Donation 880 Repairs and Maintenance 1 560

10 440Financial Expenses: Interest on Loans 1 500

Selling & Distribution Expenses: Discounts Allowed 400

(12 340)NET PROFIT 9 240


COMMONLY USED ACCOUNTING TERMSCOMMONLY USED ACCOUNTING TERMS

1.1. AssetsAssets

2.2. LiabilitiesLiabilities

3.3. Owner’s EquityOwner’s Equity

4.4. ExpensesExpenses

5.5. RevenueRevenue

6.6. Double Entry Book-Keeping SystemDouble Entry Book-Keeping System