Why Record Transactions?

• To have a systematic recording of transaction analyze report to users

• Items that goes to Balance Sheet (Asset, Liability & Equity)– To know to financial position how much your assets, the

amount owe to others and the money that business owns (equity)

• Items that goes to Profit and Loss Statement (Sales, Sales return/return inward, Sales discount, Purchase, Purchase return/return outward, Expense)– Know the performance (profit and loss) for particular

accounting period

How to record transaction?

• Identify the TWO (2) Items• Give a appropriate name• Identify the types of account

– Balance sheet items– Profit and loss items

• Know the increase and the decrease• Determine the debit and credit

– Balance sheet items (always involve two side)– Profit and loss items (normally take one side)

• Post to appropriate Journal or Ledger Trial Balance Profit & Loss/ Balance Sheet

Examples: Balance Sheet Items (Asset)Buy an equipment by cash

RM100

Equipment

1) Identify the TWO Items

Cash

Examples: Balance Sheet Items (Asset)

Office Equipment

2) Give a appropriate name

Cash in Hand

Buy an equipment by cash RM100

Equipment

Cash

Examples: Balance Sheet Items (Asset)

Office Equipment

3) Identify the types of account

Cash in Hand

= Asset

= Asset

Buy an equipment by cash RM100

Identify the type of these accountCash in Bank

Bank Loan

= Asset

= Liability

Capital = Equity

Sale of Goods = Sales

Salary/ Pay bill = Expense

Identify the type of these account

Purchase goods = PurchaseReturn Inward/ Sale Return = Contra-sales

Return Outward/ Purchase Return = Contra-purchase

Sales Discount = Contra-salesDrawing = Contra-capital

Examples: Balance Sheet Items (Asset)

Office Equipment

4) Know the increase and the decrease

Cash in Hand

= Asset

= Asset

Buy an equipment by cash RM100

Examples: Balance Sheet Items (Asset)

Office Equipment

5) Determine the debit and credit

Cash in Hand

= Asset

= Asset

Debit

Credit

Buy an equipment by cash RM100

Determine debit and credit for the following:

Asset Debit

Credit

Liability Credit

Debit

Capital Credit

Debit

Determine debit and credit for the following:

Sales Credit

Return Inward/Sales Return Debit

Purchase DebitReturn Outward/Purchase Return Credit

Sales Discount Debit

Expense Debit

Examples: Balance Sheet Items (Asset)

Dr Office Equipment RM100

6) Post to appropriate Journal or Ledger

Cr Cash in Hand RM100

Buy an equipment by cash RM100

2 Jan 2012

(Buy an office equipment)

Journal Entries

Examples: Balance Sheet Items (Asset)

6) Post to appropriate Journal or Ledger

2 Jan 2012 Cash in Hand RM100

Buy an equipment by cash RM100

Office Equipment1 Jan 2012 Balance b/d RMxx

Account Ledger

Only Balance Sheet Items has balance b/d or beginning balance

Maybe why it is called BALANCE Sheet

Examples: Balance Sheet Items (Asset)

2 Jan 2012 Office Equipment RM100

6) Post to appropriate Journal or Ledger

Buy an equipment by cash RM100

Cash in Hand

1 Jan 2012 Balance b/d RMxx

Account Ledger

Trial Balance

Cash

Bank

Car

Equipment

Inventory

Purchase

Return InwardReturn Outward

Sales Discount

Expenses

Sales

Creditors

Bank Loan

Drawing

Capital

Trial Balance

Cash

Bank

Car

Equipment

Inventory

(Purchase)

(Return Inward)

Return Outward

(Sales Discount)

(Expenses)

Sales

Creditors

Bank Loan

(Drawing)Capital

Trial Balance

Cash

Bank

Car

Equipment

Inventory

(Purchase)

(Return Inward)

Return Outward

(Sales Discount)

(Expenses)

Sales

Creditors

Bank Loan

(Drawing)Capital

Profit

Trial Balance

Cash

Bank

Car

Equipment

Inventory

Creditors

Bank Loan

(Drawing)Capital

Profit

BALANCE SHEET

Cash

Bank

Car

Equipment

Inventory

Creditors

Bank Loan

(Drawing)Capital

Profit

ASSETS LIABILITIES

EQUITIES

PROFIT AND LOSS STATEMENT

(Purchase)

(Return Inward)

Return Outward

(Sales Discount)

(Expenses)

Sales

Profit

PROFIT AND LOSS STATEMENT

(Purchase)

(Return Inward)

Return Outward

(Sales Discount)

(Expenses)

Sales

Profit

Cost of goods sold

WAIT ! WHAT ABOUT INVENTORY???

BALANCE SHEET

Cash

Bank

Car

Equipment

Inventory

Creditors

Bank Loan

(Drawing)Capital

Profit

ASSETS LIABILITIES

EQUITIES

BALANCE SHEET

Cash

Bank

Car

Equipment

Inventory

Creditors

Bank Loan

(Drawing)Capital

Profit

ASSETS LIABILITIES

EQUITIES

Change in Inventory

BALANCE SHEET

Cash

Bank

Car

Equipment

Inventory

Creditors

Bank Loan

(Drawing)Capital

Profit

ASSETS LIABILITIES

EQUITIES

Change in Inventory

Trial Balance

Cash

Bank

Car

Equipment

Inventory

(Purchase)

(Return Inward)

Return Outward

(Sales Discount)

(change in inventory)

Sales

Creditors

Bank Loan

(Drawing)Capital

Profit

(Expenses)

PROFIT AND LOSS STATEMENT

(Purchase)

(Return Inward)

Return Outward

(Sales Discount)

(Expenses)

Sales

Profit

Cost of goods sold

(Change in inventory)

We calculate Beginning Inventory – Ending Inventory to calculate Change in Inventory

Cost of goods sold

Beginning Inventory plus: PurchaseLess: Purchase returnLess: Ending InventoryCost of Goods Sold

PROFIT AND LOSS STATEMENT

Beginning Inventory

(Return Inward)

+ Purchase

(Sales Discount)

Less: Expenses)

Sales

Net Profit

- Purchase Return

Total Sales

- Ending Inventory

Less: Cost of goods sold

Gross Profit(Cost of goods sold)