Accounting Cycle: Journal, Ledger & Trial Balance

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CHAPTER 4

ACCOUNTING CYCLE
JOURNAL, LEDGER & TRIAL BALANCE

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CHAPTER 3: ACCOUNTING CYCLE
1 Accounting Cycle

INTENDED LEARNING OUTCOME (ILO)


At the end of the Chapter 4, student should be able to:

1 Understand the accounting cycle and process


2 Record business transactions to journal and posting to ledger
3 Prepare trial balance
4 Understand and able to record and report transactions for a complete accounting
process.

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ACCOUNTING CYCLE
ACCOUNTING CYCLE

Source
documents

Prepare financial
Journalising The accounting cycle is the
statements
sequence of procedures
used to keep track of
business transactions and to
report the financial effect of
those things.

Prepare trial Posting to


balance ledgers

Balancing &
closing-off
accounts
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ACCOUNTING CYCLE

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BOOK OF PRIME
ENTRY
BOOK OF PRIME/PRIMARY ENTRY

• Where the first entry for the business transactions to be recorded.


• There are 6 specialised books, and 1 general book. General Journal

Name Record

CREDIT CREDIT Sales journal Sales made on credit to customers / debtors

CREDIT Sales return journal/ Return Return made by customers/debtors due to damage,
CREDIT
inwards journal incorrect, etc.

CREDIT CREDIT Purchases journal Purchased made on credit from suppliers / creditors

CREDIT Purchase return journal/Return


CREDIT Return made to suppliers/creditors
outwards journal
CASH Cash receipt journal Cash or cheque received

CASH Cash payment journal Cash or cheque issued

GENERAL General Journal


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SALES JOURNAL – FOR CREDIT SALES

• This is used to record the sale on credit of those goods bought specifically for resale.
• It is written up from copies of the sales invoices (and debit notes) retained by the seller.

Jan 1 Sold goods on credit to Angelilo for RM200 (Inv: 3458).


9 Sales of goods on credit to Michael Eng for RM456 (Inv: 2709).
31 Sold goods of RM300 to Aman Shah on credit (Inv: 335).

Date Invoice Amount


Particulars (Accounts Receivable) Folio
2015 No.. RM
Jan 1 Angelilo 3458 SL1 200
9 Michael Eng 2709 SL2 456
31 Aman Shah 335 SL3 300

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PURCHASES JOURNAL – FOR CREDIT PURCHASES

• This is used to record the purchase on credit of those goods intended for resale.
• It is written up from the invoices (and debit notes) received from suppliers.

Jan 3 Purchase of stocks from Ramlah RaRa for RM202 (Inv: 427).
6 Goods purchased on credit from Syeilala for RM707 (Inv: 429).
9 Bought stocks from Amoi Chu Sdn. Bhd. for RM111 payable after 2
months (Inv: 430).

Date Invoice Amount


Particulars (Accounts Payable) Folio
2015 No.. RM
Jan 3 Ramlah RaRa 427 PL1 202
6 Syeilala 429 PL2 707
9 Amoi Chu Sdn. Bhd. 430 PL3 111
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SALES RETURN JOURNAL – FOR RETURN INWARDS
• This is used to record goods sold on credit that have been returned by customers. It is
written up from copies of the credit notes retained by the seller.

■ Used to record goods sold on credit that have been returned by customers.

■ Example 2.3
Feb 3 Goods returned by Angelilo RM90 due to the wrong specification.
6 Goods returned by Michael Eng RM50.

Date Credit Amount


Particulars (Accounts Receivable) Folio
2015 Note No. RM
Feb 3 Return goods from Angelilo CN018 SL1 90
6 Return goods from Michael Eng CN019 SL2 50
Transfer to Sales Return Account
10 GL10 140

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PURCHASES RETURN JOURNAL – FOR RETURN OUTWARDS

• This is used to record goods purchased on credit that have been returned to
suppliers.
• It is written up from the credit notes received from suppliers

Feb 1 Goods returned to Syeilala Rusli RM10 due to the wrong specification
8 Goods returned to Amoi Chu Sdn. Bhd. RM70.

Date Credit Amount


Particulars (Accounts Payable) Folio
2015 Note No. RM
Feb 1 CN157 PL1
8 CN855 PL3
Transfer to Sales Return Account GL10

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CASH RECEIPTS JOURNAL

This is used to record receipt of cash and/or cheques.

Feb 16 Aman Shah wants to pay the RM300 that he owes to the company. He is paying
promptly, the firm offers him a 10% discount.

Date Discount Cash Bank


Particulars (Accounts Receivable) Folio
2015 received RM RM RM

Feb 16 Aman Shah SL3 RM30 RM270

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CASH PAYMENTS JOURNAL

■ This is to record all cash and/or cheque payments by a firm.

Jan 15 The company wants to pay to Syeilala, which it owes RM707. The company entitled to
a 5% discount, if it pays within a stipulated time period.

Date Discount Cash Bank


Particulars (Accounts Payable) Folio
2015 allowed RM RM RM
Jan 5 Syeilala PL2 RM35.35 RM671.65

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GENERAL JOURNAL

General Journal

Date Particulars Ref. Debit (RM) Credit (RM)

7/2/20 Motor vehicle 80,000


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Hire purchase - myvi 80,000
(Purchase of Hire purchase Myvi ACC5051)

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LEDGER
POSTING TO LEDGER

The act of transferring the information in the journal to the appropriate


accounts.

Ledgers:
A summary, by account, of all transactions affecting that account.

The different types of ledgers most business use are:

• Sales Ledger – This is for customers’ personal account


• Purchases Ledger – This is for suppliers’ personal account
• General Ledger – This contains the remaining double-entry accounts, such as those relating
to expenses, fixed assets, and capital. 16 16
LEDGER

• Ledger is a special book in which transactions are recorded.


• In other words, a book in which accounts are kept.
• It facilitate the transfers from the journal and enable to reduce the error made.

Ledgers

Impersonal
Personal Ledgers 17 Ledgers

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LEDGER

Ledgers

Personal Ledgers

Sales Ledgers Purchases Ledgers

Records ALL customers accounts 18Records ALL suppliers account

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LEDGERS
Ledgers

Impersonal Ledgers
(General Ledgers)

Nominal Ledgers Real Ledgers

Records revenue, expenses, current Records non-current


assets and liabilities account assets accounts
(except receivables and
payables accounts)

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ACCOUNTING TRANSACTION
Entering transaction into accounts Jan 1 Owner invested RM10,000 cash into the business
Example:
2 Purchase furniture & fittings paid RM2,500 cash

CASH ACCOUNT
Jan 1 Capital 10,000 Jan 2 Furniture 2,500
Dt. Cash
Cr. Capital

CAPITAL ACCOUNT
Jan 1 Cash 10,000

Dt. Furniture
Cr. Cash
FURNITURE & FITTINGS ACCOUNT
Jan 2 Cash 2,500

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ACCOUNTS – BALANCING OFF @ CLOSING ACCOUNT

◉ Balancing off accounts ‘is the process of closing the accounts to determine the
balance at the end of any particular period.

◉ When an account has debit total more than the credit total, the account is said to
have debit balance or vice versa.

◉ Usually, the balance normally corresponds to the nature of the accounts: debit
for assets and expenses while credit for liabilities, owner’s equity, and revenue.

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ACCOUNTS – BALANCE OFF EXERCISE
CASH ACCOUNT

Jan 1 Capital 10,000 Jan 2 Furniture 2,500


4 Purchases 1,500
10 Rental 1,800
15 Insurance 1,200

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ACCOUNTS – BALANCE OFF EXERCISE
CASH ACCOUNT

Jan 1 Capital 10,000 Jan 2 Furniture 2,500


4 Purchases 1,500
10 Rental 1,800
15 Insurance 1,200

10,000 10,000

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ACCOUNTS – BALANCE OFF EXERCISE
CASH ACCOUNT

Jan 1 Capital 10,000 Jan 2 Furniture 2,500


4 Purchases 1,500
10 Rental 1,800
15 Insurance 1,200
31 Balance c/d 3,000
10,000 10,000
Feb 1 Trial Balance b/d 3,000

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TRIAL BALANCE

◉ When an account has debit total more than the credit total, the account is said to have debit balance
or vice versa.

◉ Usually, the balance normally corresponds to the nature of the accounts: debit for assets and
expenses while credit for liabilities, owner’s equity, and revenue.

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TRIAL BALANCE - ILLUSTRATION

A trial balance is a list of the balances in the ledger at the end of an accounting period,
divided between those accounts with debit balances and those with credit balances.
ABC Sdn Bhd
Trial Balance at 31 December 2018
Debit Credit
Land 20,000
Equipment 12,000
Vehicle 30,000
Cash 3,000
Receivables / debtors 8,300
Supplies 2,700
Payables / creditors 4,500
Bank loan 22,000
Capital 49,500
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76,000 76,000

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Company’s Name Profit or Loss Balance Sheet
Trial Balance as at 31 December 2015
Debit (RM) Credit (RM) EXPENSES REVENUE ASSET LIABILITY &
EQUITY
Cash and bank 35,000 35,000
Trade receivable 16,500 16,500
Insurance on building 3,000 3,000
Inventory as at 1 January 2015 3,500 3500
Building 150,000 150,000
Accumulated depreciation – building 60,000 60,000
Office furniture 75,000 75,000
Accumulated depreciation – office 15,000 15,000
furniture
Trade payables 9,500 9,500
Drawings 25,000 25,000
Capital 130,200 130,200
Purchases 109,000 109,000
Bad debts 2,500 2,500
Sales 246,200 246,200
Return inwards 1,200 12,00
Return outwards 1,300 1,300
Salaries and wages 22,000 22,000
Utilities 12,000 12,000
Advertising and marketing costs 7,500 7,500
PROFIT OR (LOSS) 86,800 86,800
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462,200 462,200 247,500 247,500 301,500 214,700
FINANCIAL STATEMENTS

When the trial balance is completed, the preparation of financial


statements is really just a matter of putting the trial balance amounts
into properly formatted statements.

There are 5 main financial statement that must be prepared by the


business entity.
1. Statement of Profit or Loss (Statement of Income)
2. Statement of Financial Position
3. Statement of Cash Flows
4. Statement of Changes in Equity
5. Notes to the Accounts
Company’s Name
Statement of Comprehensive Income for the year ended 31 December 2015
Debit (RM) Credit (RM)
Sales 246,200
(-) Return inwards (1,200)
245,000
(-) Cost of goods sold
Opening stock 3,500
(+) Purchases 100,000
(+) Carriage inwards 9,000
(-) Return outwards (1,300)
(-) Closing stock (4,500)
(106,700)
Gross profit 138,300
(+) Other income
Discount received 2,000
Rental received 13,000
Interests received 700
Decrease in doubtful debt 300
16,000
(-) Expenses
Discount allowed 1,500
Bad debts 3,000
Increase in doubtful debt 800
Depreciation – building 15,000
Depreciation – office furniture 12,000
Utilities 13,500
Insurance of buildings 3,000
Salaries and wages 22,000
Advertising and marketing costs 7,500
Rental 12,000
Carriage outwards /29Delivery 500
Repair and maintenance 200
Interest 300
Stationeries 200
(91,500)
Net profit / (Loss) 62,800
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Company’s Name
Statement of Financial Position as at 31 December 2015
RM RM
Non current assets
Building 150,000
(-) Accumulated depreciation – building (75,000)
75,000
Office furniture 75,000
(-) Accumulated depreciation – office furniture (27,000)
48,000

123,000
Current assets
Debtors 16,000
(-) Provision for doubtful debts (800)
15,200
Bank 33,500
Inventory 2,500
Prepayments 2,000
53,200
176,200
Financed by:
Owner’s Equity
Capital 100,200
(+) Profit or (-) Loss 61,500
(-) Drawings (26,500)
135,200
Non current liabilities
Loan / Mortgages 30,000

Current liabilities 30
Creditors 9,500
Accruals 1,500
11,000
176,200
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THANK YOU !

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