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Dbs3024 biz trx week 1 intro

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Introduction to basic accounting, Business transactions
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Introduction to Introduction to Bookkeeping and Bookkeeping and Accounting Accounting DBS3024 BUSINESS TRANSACTION DBS3024 BUSINESS TRANSACTION by Stephen Ong Visiting Fellow, Birmingham City University Business School Visiting Professor, Shenzhen University
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Page 1: Dbs3024 biz trx week 1 intro

Introduction to Bookkeeping Introduction to Bookkeeping and Accountingand Accounting

Introduction to Bookkeeping Introduction to Bookkeeping and Accountingand Accounting

DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION

byStephen Ong

Visiting Fellow, Birmingham City University Business School

Visiting Professor, Shenzhen University

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Today’s Overview Today’s Overview

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Learning objectivesLearning objectivesAfter the lecture, you should be able to:After the lecture, you should be able to: Explain what accounting is aboutExplain what accounting is about Briefly describe the history of Briefly describe the history of

accountingaccounting Explain the relationship between Explain the relationship between

bookkeeping and accountingbookkeeping and accounting List the main users of accounting List the main users of accounting

information and what accounting information and what accounting information they are interested ininformation they are interested in

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Learning objectives Learning objectives (Continued)(Continued)

Present and explain the accounting Present and explain the accounting equationequation

Explain the relationship between the Explain the relationship between the accounting equation and the layout of accounting equation and the layout of the statement of financial position the statement of financial position (balance sheet)(balance sheet)

Explain the meaning of the terms Explain the meaning of the terms assets, capital, liabilities, accounts assets, capital, liabilities, accounts receivable (debtors) and accounts receivable (debtors) and accounts payable (creditors)payable (creditors)

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Learning objectives Learning objectives (Continued)(Continued)

Describe how accounting transactions Describe how accounting transactions affect the items in the accounting affect the items in the accounting equationequation

Draw up statements of financial position Draw up statements of financial position after different accounting transactions after different accounting transactions have occurredhave occurred

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11Introduction to accounting Introduction to accounting

principlesprinciples

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What is accounting?What is accounting?

Accounting can be defined as:Accounting can be defined as:

The process of identifying, measuring The process of identifying, measuring and communicating economic and communicating economic information to permit informed information to permit informed

judgements and decisions by users of judgements and decisions by users of that information.that information.

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The history of accountingThe history of accounting

Accounting has existed for at least Accounting has existed for at least 10,000 years, with early records 10,000 years, with early records indicating its use in Mesopotamia.indicating its use in Mesopotamia.

The “Pipe Roll” is the earliest system in The “Pipe Roll” is the earliest system in England, which was an annual England, which was an annual description of rents, fines and taxes due description of rents, fines and taxes due to the King.to the King.

Double entry bookkeeping Double entry bookkeeping was first was first used by an Italian firm in Southern used by an Italian firm in Southern France in 1299.France in 1299.

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EthicsEthics

The IFAC Code states that a professional The IFAC Code states that a professional accountant must comply with the accountant must comply with the following fundamental principles:following fundamental principles:

IntegrityIntegrity ObjectivityObjectivity Professional competence and due careProfessional competence and due care ConfidentialityConfidentiality Professional behaviourProfessional behaviour

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What are the objectives of What are the objectives of accounting?accounting?

Is the business making a profit or a Is the business making a profit or a loss?loss?

What is the business worth?What is the business worth? What is a transaction worth?What is a transaction worth? How much cash is in the business?How much cash is in the business? How wealthy is the business?How wealthy is the business? How much is the business owed?How much is the business owed? How much does the business owe?How much does the business owe? Keeping a financial check on activities.Keeping a financial check on activities.

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What is bookkeeping?What is bookkeeping?

Bookkeeping is the process of Bookkeeping is the process of recording recording

data relating to accounting transactionsdata relating to accounting transactions

in the accounting books.in the accounting books.

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The accounting sequenceThe accounting sequence

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Basic concept of Financial Basic concept of Financial ControlControl

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Users of accounting Users of accounting informationinformation

ManagersManagers Owner(s) of the businessOwner(s) of the business A prospective buyerA prospective buyer The bankThe bank Tax inspectorsTax inspectors A prospective partnerA prospective partner InvestorsInvestors CreditorsCreditors

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Importance and Need for Importance and Need for accountingaccounting

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22The Accounting systemThe Accounting system

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Accounting system for a businessAccounting system for a business

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Source Business DocumentsSource Business Documents InvoiceInvoice Credit noteCredit note Debit noteDebit note Paying-in slipsPaying-in slips Cheque counterfoilCheque counterfoil ReceiptReceipt Petty cash voucherPetty cash voucher Bankers’ Automated Clearing Service (BACS) Bankers’ Automated Clearing Service (BACS)

receipt receipt National Electronic Cheque Information Clearing National Electronic Cheque Information Clearing

System (eSPICK )System (eSPICK ) Interbank GIRO (MyClear)Interbank GIRO (MyClear) Malaysian Electronic Payment System (MEPS)Malaysian Electronic Payment System (MEPS)

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Books of original entryBooks of original entry

The journalThe journal Sales day book (sales journal)Sales day book (sales journal) Purchases day book (purchases Purchases day book (purchases

journal)journal) Purchases returns day book (returns Purchases returns day book (returns

outwards day book/journal)outwards day book/journal) Sales return day book (returns inwards Sales return day book (returns inwards

day book/journal)day book/journal) Cash bookCash book Petty cash bookPetty cash book

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Types of LedgerTypes of Ledger

SALES LEDGERSALES LEDGER((Debtors’ ledger)Debtors’ ledger)Shows records of Shows records of customers’ personal customers’ personal accountsaccounts

GENERAL LEDGERGENERAL LEDGER

(Nominal ledger)(Nominal ledger)Contains the Contains the remaining remaining double double entry accountsentry accounts, , such as assets, such as assets, capital, expenses capital, expenses and income. and income.

PURCHASE LEDGERPURCHASE LEDGER((Creditors’ ledger)Creditors’ ledger)Shows records of Shows records of suppliers’ personal suppliers’ personal accountsaccounts

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Classification of accountsClassification of accounts

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33The balance sheet and the The balance sheet and the

accounting equationaccounting equation

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The accounting equationThe accounting equation

Resources supplied by the owner = Resources in the Resources supplied by the owner = Resources in the businessbusiness

Capital = AssetsCapital = Assets

But if someone else has provided some of the assets:But if someone else has provided some of the assets:

Capital = Assets - LiabilitiesCapital = Assets - Liabilities

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The statement of financial position and The statement of financial position and the effects of business transactionsthe effects of business transactions

On 1 May 2011, B. Blake started in business On 1 May 2011, B. Blake started in business and deposited and deposited RM60,000RM60,000 into a bank account into a bank account opened specially for the businessopened specially for the business

Statement of financial position as at 1 May 2011Statement of financial position as at 1 May 2011

Assets: Cash at bankAssets: Cash at bank RM60,000RM60,000

CapitalCapital RM60,000RM60,000

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The statement of financial position and the The statement of financial position and the effects of business transactions (Continued)effects of business transactions (Continued)

On 3 May 2011, Blake buys a small shop for On 3 May 2011, Blake buys a small shop for RM32,000RM32,000, paying by cheque, paying by cheque

Statement of financial position as at 2 May 2011Statement of financial position as at 2 May 2011

Assets RMAssets RM

ShopShop 32,00032,000

Cash at bankCash at bank 28,00028,000

60,00060,000

CapitalCapital 60,000 60,000

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On 6 May 2011, Blake buys some goods for On 6 May 2011, Blake buys some goods for RM7,000RM7,000 from D. Smith and agrees to pay for them some time from D. Smith and agrees to pay for them some time within the next two weekswithin the next two weeks

Statement of financial position as at 6 May 2011Statement of financial position as at 6 May 2011AssetsAssets RM RMShopShop 32,000 32,000InventoryInventory 7,000 7,000Cash at bankCash at bank 28,00028,000

67,00067,000Less: Account payableLess: Account payable (7,000) (7,000)

60,00060,000CapitalCapital 60,000 60,000

The statement of financial position and the effects of business transactions (Continued)

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On 10 May 2011, goods which cost On 10 May 2011, goods which cost RM600RM600 were sold to were sold to J. Brown for the same amount, the money to be paid laterJ. Brown for the same amount, the money to be paid later

Statement of financial position as at 10 May 2011Statement of financial position as at 10 May 2011Assets RM Assets RM ShopShop 32,000 32,000InventoryInventory 6,400 6,400Account receivableAccount receivable 600 600Cash at bankCash at bank 28,00028,000

67,00067,000Less: Account payableLess: Account payable (7,000) (7,000)

60,00060,000CapitalCapital 60,000 60,000

The statement of financial position and the effects of business transactions (Continued)

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On 13 May 2011, goods which cost On 13 May 2011, goods which cost RM400RM400 were sold to were sold to D. Daley for the same amount. Daley paid for them D. Daley for the same amount. Daley paid for them immediately by chequeimmediately by cheque

Statement of financial position as at 13 May 2011Statement of financial position as at 13 May 2011Assets RMAssets RMShopShop 32,000 32,000InventoryInventory 6,0006,000Account receivableAccount receivable 600 600Cash at bankCash at bank 28,40028,400

67,00067,000Less: Account payableLess: Account payable (7,000) (7,000)

60,00060,000CapitalCapital 60,000 60,000

The statement of financial position and the effects of business transactions (Continued)

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On 15 May 2011, Blake pays a cheque for On 15 May 2011, Blake pays a cheque for RM3,000RM3,000 to D. to D. Smith in part payment of the amount owingSmith in part payment of the amount owing

Statement of financial position as at 15 May 2011Statement of financial position as at 15 May 2011Assets RMAssets RMShopShop 32,000 32,000InventoryInventory 6,000 6,000Account receivableAccount receivable 600 600Cash at bankCash at bank 25,40025,400

64,00064,000Less: Account payableLess: Account payable (4,000)(4,000)

60,00060,000CapitalCapital 60,000 60,000

The statement of financial position and the effects of business transactions (Continued)

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J. Brown, who owed Blake RM600, makes a part J. Brown, who owed Blake RM600, makes a part payment of payment of RM200RM200 by cheque on 31 May 2011 by cheque on 31 May 2011

Statement of financial position as at 31 May 2011Statement of financial position as at 31 May 2011Assets RMAssets RMShopShop 32,000 32,000InventoryInventory 6,000 6,000Account receivableAccount receivable 400400Cash at bankCash at bank 25,60025,600

64,00064,000Less: Account payableLess: Account payable (4,000)(4,000)

60,00060,000CapitalCapital 60,000 60,000

The statement of financial position and the effects of business transactions (Continued)

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Equality of the accounting Equality of the accounting equationequation

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Learning outcomesLearning outcomes

You should have now learnt:You should have now learnt:

1.1. Accounting is concerned with the recording, Accounting is concerned with the recording, classifying and summarising of data, and classifying and summarising of data, and then communicating what has been learnt then communicating what has been learnt from itfrom it

2.2. Accounting has existed for at least 10,000 Accounting has existed for at least 10,000 years but a formal, generally accepted years but a formal, generally accepted method of recording accounting data has method of recording accounting data has only been in existence for the last 500 yearsonly been in existence for the last 500 years

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Learning outcomes Learning outcomes (Continued)(Continued)

3.3. It may not only be the owner of a business It may not only be the owner of a business who will need the accounting information. It who will need the accounting information. It may need to be shown to others, e.g. the may need to be shown to others, e.g. the bank or the Inspector of Taxes.bank or the Inspector of Taxes.

4.4. Accounting information can help the Accounting information can help the owner(s) of a business to plan for the future.owner(s) of a business to plan for the future.

5.5. The accounting equation is: The accounting equation is:

Capital = Assets Capital = Assets −− Liabilities Liabilities6.6. The two sides of the accounting equation are The two sides of the accounting equation are

represented by the two parts of the represented by the two parts of the statement of financial position.statement of financial position.

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Learning outcomes Learning outcomes (Continued)(Continued)

7.7. The total of one part of the statement of The total of one part of the statement of financial position should always be equal financial position should always be equal to the total of the other part.to the total of the other part.

8.8. Every transaction affects two items in the Every transaction affects two items in the accounting equation. Sometimes that may accounting equation. Sometimes that may involve the same item being affected involve the same item being affected twice, once positively (going up) and once twice, once positively (going up) and once negatively (going down).negatively (going down).

9.9. Every transaction affects two items in the Every transaction affects two items in the statement of financial position.statement of financial position.

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Resources : Core ReadingResources : Core Reading

Wood, Frank and Robinson, Sheila Wood, Frank and Robinson, Sheila (2009) (2009) Bookkeeping and Accounts Bookkeeping and Accounts ,7,7thth Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall

Wood, Frank and Sangster, Alan (2012) Business Accounting ,12th Edition, Pearson/ FT Prentice Hall

Fortes, Hilary (2011) Accounting Simplified , Pearson/ FT Prentice Hall

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QUESTIONS?QUESTIONS?


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