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ANALYZING TRANSACTIONS
Accounting: A Malaysian Perspective, 4th ed (Adapted from Accounting 22nd ed) Warren, Reeve and Duchac
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Definitions
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T Account Click
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Cash
Date Capital Fees 25,000 5,000 . Bal b/d 30,000 9,050
Types of accounts
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Accounts
Revenues
Owners equity
Drawing
title style
Drawing
withdrawals by owner
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Assets
resources owned by the business Examples: cash, supplies, AR, office equipment
Liabilities
debts owed to outsiders (creditors) Examples: AP, salaries payable
Owners Equity
title style
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Expenses cost of using up assets or consuming services in the process of generating revenues Examples: wages expense, rent expense, miscellaneous expense
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Every transaction would first be recorded in a journal The process of recording a transaction in the journal is called journalizing
Date 1 2 3 Description PR Debit Credit
Journal
Pg
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title style
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(a) On November 1, Idris Ismail opens a new business and deposits RM25,000 in a bank account in the name of NetSolutions. Journal
Date Description Idris Ismail, Capital Invested cash in NetSolutions. PR Debit 25,000 25,000 Nov 1 Cash
Pg
Credit
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Nov 1 25000
Nov 1 25000
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title style
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Journal
Date Description Cash Purchased land for cash. PR Debit
Pg
Credit 20,000
Nov 5 Land
20,000
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title style
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Journal
Date Description Accounts Payable Purchased supplies on account. PR Debit Nov 10 Supplies
Pg
Credit 1,350 1,350
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title style
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Pg
Credit
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title style
Credit
Decrease (-) Increase (+) Increase (+)
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Increase (+)
Decrease (-)
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Prepare a journal entry for the purchase of a truck on June 3 for RM42,500, paying RM8,500 cash and the remainder on account.
Journal
June 3 Truck Cash Accounts Payable 42,500
PG
8,500 34,000
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title style
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(d) On November 18, NetSolutions received fees of RM7,500 from customers for services provided during the month. Journal
Date Description Fees Earned Received fees from customers. PR Debit 7,500 7,500 Nov 18 Cash
Pg
Credit
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title style
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(e) Throughout the month, NetSolutions incurred the following expenses: wages RM2,125; rent RM800; utilities RM450; and miscellaneous RM275. Journal Pg
Date Description
Rent expense Utilities expense Miscellaneous expense
PR
Debit
2,125 800 450 275
Credit
Cash
Paid expenses for the month.
3,650
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title style
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(g) On November 30, a count revealed that RM800 of the supplies inventory had been used during the month. Journal Pg
Date Description Supplies Supplies used during the month. PR Debit 800 800 Credit Nov 30 Supplies expense
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Decrease (-)
Increase (+)
Revenues
Debit for Credit for decreases (+) increases (-)
Expenses
Debit for Credit for increases (+) decreases (-)
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Revenues > Expenses = Net income increases Owners equity (capital) Revenues < Expenses = Net loss decreases Owners equity (capital)
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Prepare a journal entry on August 7 for the fees earned on account, RM115,000. Journal
Aug 7 Accounts Receivable Fees earned 115,000 115,000
Pg
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Drawing account
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When owner of a proprietorship withdraws cash from the business for personal use Decreases owners equity (capital)
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On November 30, Idris Ismail withdrew RM2,000 in cash from NetSolutions for personal use.
2,000 2,000
Journal
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Prepare a journal entry on December 29 for the payment of RM12,000 to the owner of Smart Consulting Services, Danny Wong, for personal use.
Dec 29 Danny Wong, Drawing Cash Owner withdrew cash for personal use. 12,000 12,000
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Debit & credit rule and normal Click to edit Master balance
Increase
BS accounts:
Asset Liability Owners equity Capital Drawing Credit Debit Credit Debit Debit Debit Credit
title style
Normal balance
Debit Credit Credit Debit Credit Debit
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Decrease
Credit Debit
IS accounts:
Revenue Expense 30
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State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance. 1. 2. 3. 4. 5. 6. Amber, Drawing Accounts Payable Cash Fees Earned Supplies Utilities Expense
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Accounting equation
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The accounting system is known as the double entry accounting system Each transaction would affect at least 2 accounts Total debits would always equal total credits
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Transaction analysis
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Posting Click
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The process of transferring the debits and credits from the journal entries to the accounts
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example Click
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Dec.1 NetSolutions paid a premium of RM2,400 for a comprehensive insurance policy covering a one-year period.
Dec 1
2,400 2,400
The entry would then be posted to the accounts (using the 3-column account) refer Exhibit 5 Refer to the text book for the full example
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On March 1, the cash account balance was RM22,350. During March, cash receipts totaled RM241,880 and the March 31 balance was RM19,125. Determine the cash payments made during March. Refer to the text book to solve using T-account Alternatively:
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A list of all the accounts maintained by the business entity, along with their respective balances Refer Exhibit 7 for an example of a Trial Balance
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Indicate whether the errors would cause the TB totals to be unequal. If so, indicate whether the Dr or Cr total is higher and by how much. a. Cash withdrawal of RM5,600 was journalized and posted as a debit of RM6,500 to Salary Expense and a credit of RM6,500 to Cash.
The totals are equal since both the debit and credit entries were journalized and posted for RM6,500. 41
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The totals are unequal. The credit total is higher by RM270 (RM2,850 RM2,580).
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The totals are unequal. The debit total is higher by RM7,000 (RM3,500 + RM3,500).
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TypesClick of errors to
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Refer Exhibit 8 Transposition - occurs when the order of the digits is changed mistakenly, such as writing RM542 as RM452 or RM524. Slide - the entire number is mistakenly moved one or more spaces to the right or the left, such as writing RM542.00 as RM54.20.
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Prepare correcting entries for the following errors: a. A withdrawal of RM6,000 by Cheri Ramey, owner of the business, was recorded as a debit to Office Salaries Expense and a credit to Cash. b. Utilities Expense of RM4,500 paid for the current month was recorded as a debit to Miscellaneous Expense and a credit to Accounts Payable.
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(a) A withdrawal was debited to Office Salaries Expense and credited to Cash. The wrong entry: Office Salaries Expense Cash The correct entry:
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6,000 6,000
6,000 6,000
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(b) Utilities Expense for the current month was debited to Miscellaneous Expense and credited to Accounts payable. The wrong entry: Miscellaneous Expense 4,500
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4,500
4,500 4,500
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4,500
4,500
The first entry reverses the incorrect entry, and the second entry records the correct entry
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