Basic Equation Asset = Liabilities + Equity
Expanded
Equation
Asset = Liabilities + Share
Capital
+ Retained
Earning
- Devidend + Revenues - Expenses
Debit/ Credit
Effect
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
+ - - + - + - + + - - + + -
Notes: Each adjusting entry will affect one or more income statement accounts
and one or more statement of financial position accounts.
Interest Computation
Interest = Face Value of Note X Annual Interest Rate X Time in Terms of One Year
Types Adjusting Entries
Deferals Dr Prepaid Expenses Dr Expenses Cr Assets
Cr Unearned Revenues Dr Liabilities Cr Revenues
Accruals Dr Accrued Revenues Dr Assets Cr Revenues
Cr Accrued Expenses Dr Expenses Cr Liabilities
Purpose
1. Update Retained Earning account in the ledger by transferring net income
(loss) and devidends to RE.
2. Prepare the temporary accounts (revenues, expenses, and dividends) for
the next period’s postings by reducing their balances to zero.
Process
1. Debit each revenue account and Credit Income Summary.
2. Credit each expenses account and Debit Income Summary.
3. Debit (Credit) Income Summary and Credit (Debit) Retained Earning for the
amount of net income (loss).
4. Credit RE for the balance of Dividend account and Debit Dividend for the
same amount.
Stop and Check: use worksheet of trial balance.
Ownership and Point of Sale
Freight Terms Point of Sales
(i.e. when the risk
is transferred)
Ownership of Goods
on Public Carrier
Resides with:
Who Pay
Freight Costs
b/w Point
Freight Expense
Treated as
FOB Shipping
Point
Depart from Seller
Warehouse
Buyer Buyer Inventory cost
for Buyer
FOB
Destinantion
Arrive to Buyer
Warehouse
Seller Seller Delivery expense
for seller
Perpetual vs Periodic Journal Entries
(*) Costing Method
(1) Specific identification, (2) FIFO, and (3) Weighter average
Event Perpetual Periodic (*)
Purchase of goods (Dr) Inventory,
(Cr) Cash/ AP
(Dr) Purchases
(Cr) Cash / AP
Freight (shipping
point)
(Dr) Inventory,
(Cr) Cash
(Dr) Freight in
(Cr) Cash
Retuns of goods (Dr) Cash/ AP,
(Cr) Inventory
(Dr) Purchases
(Cr) Purchase Returns and Allowances
Sales of goods (Dr) Cash/ AR,
(Cr) Sales
(Dr) COGS,
(Cr) Inventory
(Dr) Cash / AR
(Cr) Sales
No Entry
End of period No Entry (if no absolence or
loss)
Closing or Adjusting entries required, to record
the ending inventory balance .
The Fraud Triagle
Principles of Internal Control Activities
1. Establishment of responsibility.
2. Segregation of duties/ functions.
3. Documentation procedures.
4. Physical controls.
5. Independent internal verification.
6. Human resouce controls.
Bank Reconciliation
Bank
Balance per Bank Statement
Add: deposit in transit
Deduct: outstanding checks
Adjusted cash balance
Books
Balance per Books
Add: unrecorded credit memo from
bank statement
Deduct: unrecorded debit memo from
bank statement
Adjusted cash balance
Notes:
1. Errors should be offset (added or deducted) on the side that made the error.
2. Adjusting journal entries should only be made on the Books.
Method to Account for Uncollectible Accounts
Direct write off method No adjustment entry
Record bad debt expense when the company
determines a particular account to be uncollectible
Allowance method:
% of sales
Make adjustment entry
At the end of each period, estimate the amount of
credit sales uncollectible (e.g.: xxx).
Dr: Bad Debt Expense xxx
Cr: Allowance for Doubtful Account xxx
As spesific account become uncollectible
Dr: Allowance for Doubtful Account
Cr: Account Receivables
Allowance method:
% of receivables
Make adjustment entry
At the end of each period, estimate the amount of
uncollectible receivables (e.g.: xxx) :
Dr: Bad Debt Expense (xxx- beginning balance)
Cr: Allowance for Doubtful Account (xxx- BB)
As spesific account become uncollectible
Dr: Allowance for Doubtful Account
Cr: Account Receivables
PPE (IAS 16)Properti Investasi
(IAS 40)
Aset Tidak Lancar -
Held for Sale
(IFRS 5)
Aset Tetap Berwujud
Tanah/Bangunan/
Mesin
Digunakan dalam
operasional.
Disewakan dalam
bentuk sewa
pembiayaan.
Digunakan untuk
administrasi.
Tanah / Bangunan
Untuk peroleh
pendapatan sewa
Untuk dapat capital
gain
Aktiva Tetap
Dijual dalam
waktu dekat.
Presentation
Tangible Assets Intangible Assets
Property, Plant, and Equipment (IAS 16) Intangible Assests (patents, copyrights,
trademarks, franchises, goodwill) (IAS 38)
Natural Resources
Computation of Annual Depreciation Expense
Straight-line method Cost – Residual Value
Useful Life (in years)
Units-of-activity Depreciable Cost X units of activity during year
Useful Life (in units)
Declining balance Book value at beginning X Declining balance rate
* Declining balance rate = 1 : useful life in years
Aset tetap berupa tanah, bangunan atau tanah dan bangunan yang dimiliki
entitas, dengan tujuan untuk mendapatkan pendapatan sewa atau untuk
mengapresiasi kenaikan nilai atau keduanya, dan tidak untuk:
1. digunakan dalam produksi atau penyediaan barang atau jasa atau
untuk tujuan administratif; atau
2. dijual dalam kegiatan sehari-hari.
Tidak termasuk Properti Investasi:
1. Dimaksudkan untuk dijual dalam operasi normal entitas
2. Dibangun atau dikembangkan sebagian oleh pihak ketiga, bukan untuk
tujuan property investasi.
3. Digunakan dalam operasi normal entitas
4. Disewakan ke pihak lain dengan sewa pembiayaan.
Comparison of Long-term Bond Investment and Liability Journal Entries
Comparison of Cost and Equity Methods of Accounting LT Share Investment
Event Investor Investee
Purchase / Issue of Bonds Dr: Debt Investment
Cr: Cash
Dr: Cash
Cr: Bond Payable
Interest receipt/ payment Dr: Cash
Cr: Interest Revenue
Dr: Interest Expense
Cr: Cash
Event Cost Equity
Acquisition Dr: Share Investment
Cr: Cash
Dr: Share Investment
Cr: Cash
Investee Reports Earnings No Entry Dr: Share Investment
Cr: Investment Revenue
Investee Pays Devidends Dr: Cash
Cr: Dividend Revenue
Dr: Cash
Cr: Share Investment
Trading (Share) and Available for Sale / Hold for Collection (Bond) Securities
Classification Valuation Approach and Reporting Income Effects
Debt Investment
1. Meets business model
(HFC) n contractual CFM
Amortized cost / Current or Non
current asset
Interest is recognized as revenue. No holding
gain / loss recognized.
2. Not meet the business
model test (not HFC).
Fair value / Current asset Interest is recognized as revenue. Unrealized
holding gain /loss is included in income
3. Fair value option. Fair value / Current asset or Non
current asset
Interest is recognized as revenue. Unrealized
holding gain /loss is included in income
Equity Investment
1. Not meet contractual
cash flow test; holding <
20% (trading).
Fair value / Current asset Dividend is recognized as revenue.
Unrealized holding gain /loss is included in
income
2. Not meet contractual
cash flow test; holding <
20% (non trading)
Fair value / Non current asset Dividend is recognized as revenue.
Unrealized holding gain /loss is included in
other comprehensive income.
3. Holding > 20%
(significant influence or
control)
Originally recorded at cost with
periodic adjust for the share of the
investee’s income /loss, and
decreased by dividends received /
Non current asset
Revenue is recognized to the extent of the
investee’s income /loss reported subsequent
to the date of the investment.
Sumber: KPMG, 2008
Computation of annual bond interest expenses
Interest expense = interest paid (payable) + amortization of discount
(or) – amortization of premium
Premiun Market interest rate < Contractual interest rate
Face Value Market interest rate = Contractual interest rate
Discount Market interest rate > Contractual interest rate
Effective interest
amortization
(preferred method)
Bond interest expense Bond interest expense
Carrying value of bonds at
beginning of period x
effective interest rate
Face value of bonds x
contractual interest rate
No Par Value vs Par Value Share Journal Entries
No Par Value Par Value
Cash
Share capital - ordinary
Cash
Share capital – ordinary
Share premium – ordinary
Comparison of Dividends Effects
Cash Share capital - ordinary Retained earning
Cash dividend No effect
Share dividend No effect No effect
Share split No effect No effect No effect
Debits and Credits to Retained Earnings
Debits (Decreases) Credits (Increases)
1. Net losses.
2. Prior period adjust for overstate of income
3. Cash dividends and share dividends
4. Some disposal of treasury shares
1. Net income
2. Prior period adjustment for
understatement of income
Cashflow from Operating Activities (Indirect Method)
Net Income
Add: Loss on disposal of assets $ xxx
Amortization and depreciation xxx
Decrease in non-cash current assets xxx
Increase in current liabilities xxx
Deduct: Gains on disposal of assets $ (xxx)
Increase in non-cash current assets (xxx)
Decrease in current liabilites (xxx)
Net cash provided (used) by Operating Activities $ xxx
Cashflow from Investing Activites (only use Gross Method)
Add: Sale of Fixed / Noncurrent Assets $ xxx
Deduct: Purchase of Fixed / Noncurrent Assets (xxx)
Net cash provided (used) by Investing Activities $ xxx
Cashflow from Financing Activites (only use Gross Method)
Add: Proceed from Long-term Financing $ xxx
Deduct: Payment / Settlement for Long-term Financing (xxx)
Net cash provided (used) by Financing Activities $ xxx
Cashflow from Operating Activities (Direct Method)
Cash Receipts
From: Sales of goods and services to customer $ xxx
Interest and dividend receipt xxx
Others operating receipts xxx
Cash Payments
For: Purchase of goods and service from supplier $ (xxx)
Interest payment (xxx)
Tax payment (xxx)
Net cash provided (used) by Operating Activities $ xxx
Cashflow from Investing Activites (only use Gross Method, can not be offset)
Add: Sale of Fixed / Noncurrent Assets $ xxx
Deduct: Purchase of Fixed / Noncurrent Assets (xxx)
Net cash provided (used) by Investing Activities $ xxx
Cashflow from Financing Activites (only use Gross Method, can not be offset)
Add: Proceed from Long-term Financing $ xxx
Deduct: Payment / Settlement for Long-term Financing (xxx)
Net cash provided (used) by Financing Activities $ xxx
Period Prior Adjustments Books still open:
Directly reverse the related accounts.
Books closed:
Statement of Retained Earnings (adjustment of
beginning RE )
Discontinued Operations Income Statement (presented separately after “Income
from Continuing Operations”)
Change in Accounting
Principle
In most intances, use the new method in current
period and restate previous years result using new
method.
For changes in depreciation and amortization
methods, use the new method in the current period,
but do not restate previous periods.