1.the need for book-keeping 2. the accounting equation 3. the double entry system for assets,...

1.The need for book-keeping1.The need for book-keeping

2. The accounting equation2. The accounting equation

3. The double entry system for assets, liabilities and capital3. The double entry system for assets, liabilities and capital

4. The asset of stock4. The asset of stock

5. The double entry system for expenses and revenue5. The double entry system for expenses and revenue

Introduction to double Introduction to double entry systementry system

6. Balancing off the accounts6. Balancing off the accounts

Introduction to double entry accounting

1.The need for book-keeping1.The need for book-keeping


1.Recording Accounting Data1.Recording Accounting Data

RECORDSRECORDS

RECORDSRECORDS

e.g. Peter…e.g. Peter…

BuildingsBuildings

ComputerComputer

Motor VanMotor Van


1.Recording Accounting Data1.Recording Accounting Data RECORDSRECORDS RECORDSRECORDS2.Classifying and summarising data2.Classifying and summarising data

?We should put them in a systematical way!

e.g. Chan’s familye.g. Chan’s family


1.Recording Accounting Data1.Recording Accounting Data RECORDSRECORDS RECORDSRECORDS2.Classifying and summarising data2.Classifying and summarising data

?We should put them in a systematical way!

2.Classifying and summarising data2.Classifying and summarising data

3. Communicating Information3. Communicating Information

Profit?Profit?

Loss?Loss?

How can I know?How can I know?

AccountantAccountant

I can tell you!I can tell you!


1.Recording Accounting Data1.Recording Accounting Data RECORDSRECORDS RECORDSRECORDS

2.Classifying and summarising data2.Classifying and summarising data



1.Recording Accounting Data1.Recording Accounting Data

2.Classifying 2.Classifying and summarising dataand summarising data


Accounting is Accounting is the process of…the process of…

What is What is book-keeping?book-keeping?

BookBookkeepingkeeping

YES!YES!

NO!NO!

NO!NO!


2. The Accounting Equation2. The Accounting Equation


Capital , Assets and LiabilitiesCapital , Assets and Liabilities

What are they?What are they?e.g. S.Wong wants to open a fast food shop…e.g. S.Wong wants to open a fast food shop…

$500 000$500 000Desk and chairDesk and chair$160 000

ComputersComputers $40 000

GoodsGoods

$210 000

$90 000

CookerCooker



Desk and chairDesk and chair

ComputersComputers

GoodsGoods

CookerCooker

Asset : The resources possessed by the firmAsset : The resources possessed by the firm



$500 000$500 000

Capital : The resources supplied by the ownerCapital : The resources supplied by the owner



$500 000$500 000

CapitalCapitalAssetsAssets

Desk and chairDesk and chair

ComputersComputers

GoodsGoods

CookerCooker

$160000$160000

$210000$210000

$40000$40000

$90000$90000

++

++

++

==



CapitalCapitalAssetsAssets ==

$500 000$500 000Desks and chairsDesks and chairs$160 000

ComputersComputers$40 000

GoodsGoods

$210 000

$90 000CookerCooker

e.g. S.Wong want to open a fast food shop…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 chairsExtra Desks and chairs

Extra goodsExtra goods



$500 000$500 000

e.g.One year later,S.Wong want to expand his business…

Extra Desks and chairsExtra Desks and chairs


Desk and Chair

Computer

Goods

Cooker

Assets=Capital

But no money left…But no money left…

What can he do?What can he do?

Borrow from bank!Borrow from bank!

$100 000


$100 000

Liabilities:The indebtedness of the firm for the resourcesLiabilities:The indebtedness of the firm for the resources

Extra goodsExtra goods Extra Desks and chairsExtra Desks and chairsAssetsAssets::



$500 000$500 000

CapitalCapitalAssetsAssets LiabilitiesLiabilities

$100 000$100 000

Desk and Chair

Computers

Goods

Cooker


Extra Extra Desks and chairsDesks and chairs

= +



Accounting Equation:Accounting Equation:

Assets = Capital + Liabilities



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


The Double Entry SystemThe Double Entry System

e.g. e.g. Tai Hung has a habit of recording the money he spent.Tai Hung has a habit of recording the money he spent.

When he buys a CD…When he buys a CD…

Cash

-CD

+Each transaction affects Each transaction affects 22 items… items…

We have to enterWe have to enter twicetwice…

DoubleDouble Entry System Entry System


What is an account?

Account Name

Specify asset, capital or liability

2001 $ 2001 $

Date

DebitDebit CreditCredit


How to process the double entry system?How to process the double entry system?

Assets = Capital + LiabilitiesAssets = Capital + Liabilities

1.Double entry for 1.Double entry for ASSETSASSETS

Jan 4 Bought motor van paying by cash $160 000.

Recall:

Motor Van

Cash

paying by cash

$160 000$160 000

$160 000$160 000

Bought motor van

$160 000$160 000

2003 $

$2003

Jan 4 Motor Van 160 000

Jan 4 Cash 160 000




Jan 6 Sold motor van by cash $90 000.

Motor Van

Cash $90 000$90 000

$90 000$90 000

$90 000$90 000

2003 $

$2003

Jan 6 Motor Van 90 000

Jan 6 Cash 90 000




Conclusion:For ANY asset a/c

+ Increase - Decrease



2.Double entry for 2.Double entry for LiabilitiesLiabilities

Jan 10 Bought machinery from L.Lo Ltd. on credit $93 000.Jan 10 Bought machinery from L.Lo Ltd. on credit $93 000.

L.Lo Ltd.

Machinery $93 000$93 000

$93 000$93 000

$93 000$93 000

2003 $

$2003

Jan 10 L.Lo Ltd. 93 000

Jan 10 Machinery 93 000

$93 000$93 000




Feb 3 Paid L.Lo Ltd. $93 000 in cash.Feb 3 Paid L.Lo Ltd. $93 000 in cash.

L.Lo Ltd.

Cash $93 000$93 000

$93 000$93 000

$93 000$93 000

2003 $

$2003

Feb 3 L.Lo Ltd. 93 000

Feb 3 Cash 93 000

$93 000$93 000




Conclusion:For ANY liability a/c

- Decrease + Increase



3.Double entry for 3.Double entry for CapitalCapital

Jan 1 The proprietor started business with $500 000 in cash.Jan 1 The proprietor started business with $500 000 in cash.

Capital

Cash $500 000$500 000

$500 000$500 000

$500 000$500 000

2003 $

$2003

Jan 1 Capital 500 000

Jan 1 Cash 500 000

$500 000$500 000



3.Double entry for 3.Double entry for CapitalCapital

Conclusion:Capital a/c



Conclusion for double entry systemConclusion for double entry system


DebitDebit

DebitDebit DebitDebit

CreditCredit CreditCredit

CreditCredit

++

--


The concept of The concept of DebtorDebtor and and CreditorCreditor

Debtor

Creditor

Business

Goods

When he has not paid the business money, he is a When he has not paid the business money, he is a

debtordebtor..

Business

Goods

When the business has not paid him the money, When the business has not paid him the money,

he is a he is a creditorcreditor..


4. The Asset of Stock4. The Asset of Stock


Accounts for each type of dealing in goods

Supplier

Business

CustomerIn the business point of view…

Goods

Goods

Purchases

Sales


Purchases

Cash PurchasesCash Purchases Credit PurchasesCredit Purchases

Paid by cash or cheque immediately

Paid for it later



1.Double entry of Purchases of stock for Cash1.Double entry of Purchases of stock for Cash

Aug 2 Goods costing $160 are bought by using cash.

Cash

Purchases $160$160

$160$160

$160$160

2003 $

$2003

Aug 2 Cash 160

Aug 2 Purchases 160



2.Double entry of Purchases of stock on credit2.Double entry of Purchases of stock on credit

Aug 4 Goods costing $160 are bought on credit from Wong.Aug 4 Goods costing $160 are bought on credit from Wong.

Wong

Purchases $160$160

$160$160

$160$160

2003 $

$2003

Aug 4 Wong 160

Aug 4 Purchases 160

$160$160


Sales

Cash SalesCash Sales Credit SalesCredit Sales

Receive cash or cheque immediately

Receive it later



1.Double entry of Sales of stock for Cash1.Double entry of Sales of stock for Cash

Aug 6 Goods are sold for $55,cash being received.

Sales

Cash $55$55

$55$55

$55$55

2003 $

$2003

Aug 6 Sales 55

Aug 6 Cash 55



2.Double entry of sales of stock on credit2.Double entry of sales of stock on credit

Aug 8 Sold goods on credit for $250 to K.Lee.Aug 8 Sold goods on credit for $250 to K.Lee.

Sales

K.Lee $250$250

$250$250

$250$250

2003 $

$2003

Aug 8 Sales 250

Aug 8 K.Lee 250


Accounts for each type of dealing in goods

Supplier

Business

Customer

In the business point of view…

Goods

Goods

Purchases

Sales

Damaged goodsDamaged goods

Returns Outwards

Damaged goodsDamaged goodsReturns Inwards



1.Double entry for Returns Inwards1.Double entry for Returns Inwards

F.Lo

Returns Inwards $29$29

$29$29

$29$29

2003 $

$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.



2.Double entry for Returns Outwards2.Double entry for Returns Outwards

Returns Outwards

K.Lo $96$96

$96$96

$96$96

2003 $

$2003

Aug 6 Returns Outwards 96

Aug 6 K.Lo 96

$96$96

Aug 6 Goods previously bought for $96 are returned Aug 6 Goods previously bought for $96 are returned by the firm to K.Lo.by the firm to K.Lo.


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


5. The double entry system 5. The double entry system for expenses and revenuefor expenses and revenue


What is revenue?What is revenue?

Revenue is the sales value of goods and Revenue is the sales value of goods and services that have been supplied to customers.services that have been supplied to customers.

e.g.

Commission ReceivedCommission Received Rent ReceivedRent Received


What is expense?What is expense?

Expense is the value of all assets and costs thatExpense is the value of all assets and costs thathave been used to get those income.have been used to get those income.

e.g.Motor ExpensesMotor Expenses

PostagePostage



Recall:Recall:

Capital a/c



What is the relationship between What is the relationship between expenses and capital?expenses and capital?

ExpensesExpenses ProfitProfit CapitalCapital

Capital a/c

- +Any Expenses

Debit



Examples on double entryExamples on double entry

Cash

Rent $300$300

$300$300

$300$300

2003 $

$2003

Aug 6 Cash 300

Aug 6 Rent 300

$300$300

Aug 6 The rent of $300 is paid in cash.Aug 6 The rent of $300 is paid in cash.




Bank

Motor Expenses $200$200

$200$200

$200$200

2003 $

$2003

Aug 8 Bank 200

Aug 8 Motor Expenses 200

$200$200

Aug 8 Motor expenses are paid by cheque $200.Aug 8 Motor expenses are paid by cheque $200.


What is the relationship between What is the relationship between revenue and capital?revenue and capital?

RevenueRevenue ProfitProfit CapitalCapital

Capital a/c

- +Any Revenue

Credit




Commission

Cash $250$250

$250$250

$250$250

2003 $

$2003

Aug 9 Commission 250

Aug 9 Cash 250

$250$250

Aug 9Aug 9 $250 cash is received for commission earned by the firm. $250 cash is received for commission earned by the firm.


The concept of drawingsThe concept of drawings

BossBoss

Can I take them

away?

One day…One day…



NoNo…The money is processed by the company…

But not the boss !



BossBoss

If he wants to take the money…If he wants to take the money…

He can…He can…

But he should take it back later!But he should take it back later!

DrawingsDrawings



Recall:Recall:

Capital a/c



What is the relationship between What is the relationship between drawings and capital?drawings and capital?

DrawingsDrawings CapitalCapital

Capital a/c

- +Drawings

Debit

Aug 10 The proprietor takes $460 cash Aug 10 The proprietor takes $460 cash out of the business for his own use.out of the business for his own use.




Cash

Drawings $460$460

$460$460

$460$460

2003 $

$2003

Aug 10 Cash 460

Aug 10 Drawings 460

$460$460


6. Balancing off the accounts6. Balancing off the accounts


Balancing an accountBalancing an account

How to do it?How to do it?Bank

2004 $2004 $ 2004 $2004 $May 3 Rent 300

May 6 Purchases 900May 1 Capital 2000

May 8 Sales 1100

31003100 12001200>>May 31 Bal c/d 1900

3100 3100

Jun 1 Bal b/d 1900



Sales

2004 $2004 $ 2004 $2004 $May 3 Bank 300

May 6 C.Wong 900

>>

May 31 Bal c/d 1200

1200 1200

Jun 1 Bal b/d 1200



Rent2004 $2004 $ 2004 $2004 $May 1 Bank 900 May 31 Bal c/d 900

Jun 1 Bal b/d 900

K.Wo2004 $2004 $ 2004 $2004 $May 1 Sales 1900 May 21 Bank 1900


The EndThe End

1.the need for book-keeping 2. the accounting equation 3. the double entry system for assets,...

Documents

double entry accounting

accounting equation

double entry system

information accounting

cooker slide

capital assets desk

bookkeeping slide

information slide