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Topic 1 Additional Notes - 54th Intake

The document provides an overview of financial accounting topics including the accounting equation, recording business transactions, and preparing financial statements. It discusses the accounting equation which shows that assets are equal to liabilities plus owner's equity. It provides an example of recording business transactions for a service business and how they affect the accounting equation. Finally, it demonstrates how to prepare basic financial statements including the income statement, statement of owner's equity, and balance sheet by using the ending balances from the accounting equation.

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33 views

Topic 1 Additional Notes - 54th Intake

The document provides an overview of financial accounting topics including the accounting equation, recording business transactions, and preparing financial statements. It discusses the accounting equation which shows that assets are equal to liabilities plus owner's equity. It provides an example of recording business transactions for a service business and how they affect the accounting equation. Finally, it demonstrates how to prepare basic financial statements including the income statement, statement of owner's equity, and balance sheet by using the ending balances from the accounting equation.

Uploaded by

gglv
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Accounting - Class L02

Topic 1 - Introduction to Financial Accounting


Overview
[ See handouts Slides 1-4 to 1-8 ]
i) ___________
ii) ___________ Types
Formation
BUSINESS
iii) Manufacturing
Purpose of a business:

i) ________________________
ii) Partnership
iii) _______________________

Measurement:

i) make _____________

______________________ ________________

ii) continue to ___________________

______________________ ________________
Where can we get this information?
ANSWER : _____________________
_________________ of business
informa)on system that _________ & _________
effects of business transactions
basis of recording & repor)ng is
The ___________________________

The Acounting Equation [ See handouts Slides 1-9 to 1-36 ]


Every business has the following:
ASSETS
(resources owned)

LIABILITIES
(amts owing to outside parties)

OWNER'S EQUITY
(amt owing to owner)

[ CAPITAL - DRAWINGS + REVENUES - EXPENSES ]


(1) Record business transactions using the Accounting Equation
- ensure equation is always balanced
- get balances at the end of period; ending balances
[ See Pg 2 of Notes ]
(2) Reporting effects of the business transactions in Financial Statements [See Pg 3 of Notes]
- Income Statement
- Statement of Owner's Equity
- Balance Sheet
Revenues - Expenses
= Net Profit

Opening Capital + Profit - Drawings


= Ending Capital

Assets = Liabilities + OE

End. Capital

(3) Accounting Principles are adopted/used in the recording & reporting process
to give assurance to the reliability and comparability of the accounting information
to the users. [ See handouts Slides 1-15 to 1-19 & additional explanation uploaded to D2L]

Pg 1

Prepared by Yvonne Chan

Record business transactions using the Accounting Equation


Lecture Illustration - Effects of business transactions on the accounting equation.

Date

Transactions

1-Jan

Nancy deposited $50,000 in a bank account in the name of Nancy Services

8-Jan

Nancy Services bought furniture worth $12,500 paying by cheque.

10-Jan Supplies of $6,300 was bought on credit.


16-Jan Nancy Services received $12,800 for rental from tenants through GIRO.
20-Jan The following expenses were paid by cheques: wages $1,500, utilities $350 and repairs $550.
24-Jan Nancy Services paid creditors $3,400 with a cheque.
31-Jan Nancy determined that the unused supplies was $1,900. (i.e. supplies used was $4,400)
31-Jan Nancy withdrew $ 2,100 from Nancy Servcies for her personal use.

Date

Assets
Bank

1-Jan

50,000

8-Jan

(12,500)

+ Furniture +

Supplies

12,500

Capital,
Nancy

Drawings,
Nancy

Owner's Equity

Rental
Income

Wages
Exp

Utilities
Exp

Repairs
Exp

6,300

12,800

20-Jan

(2,400)

24-Jan

(3,400)

31-Jan

Supplies
Exp

50,000

6,300
12,800
(1,500)

(350)

(550)

(3,400)

(4,400)
(2,100)
42,400 +

16-Jan

End.Bal.

Accounts
Payable

10-Jan

31-Jan

Accounting Equation of Nancy Services


Liabilities +

(4,400)
=

12,500

Assets

56,800

1,900

Liabilities
2,900

(2,000)
2,900

50,000

(2,000)

(1,500)

(350)

(550)

(4,400)

Owner's Equity

+
[ Capital

12,800

54,000

- Drawings
Pg 2

+ ( Revenue

-Expenses )
Net Profit

]
Prepared by Yvonne Chan

Reporting effects of the business transactions in Financial Statements


Lecture Illustration - Financial Statements prepared from endng bal. in the Accounting Equation.
Nancy Services
Income Statement (for Service Business) for the month ended 31 Jan 2014
$
$
Revenues:
Rental Income
12,800
Less Expenses:Wages Expense
Utilities Expense
Repairs Exense
Supplies Expense

*Format for trading


business is different
and will be covered in
Topic 3

1,500
350
550
4,400
6,800
6,000

Net profit
Nancy Services
Statement of Owner's Equity as at 31 January 2014
Opening Capital
Add: New capital
50,000
Add: Net profit
6,000
Less: Drawings
(2,100)
Ending Capital
Nancy Services
Statement of Financial Position as at 31 January 2014
$
Fixed assets
Furniture
Current assets
Bank
Supplies

53,900

$
12,500

42,400
1,900
44,300
56,800

Total Assets
Current liabilities
Account payable

2,900

Owner's equity
Ending Capital
Total Liabilities & Owner;s Equity

53,900
56,800

Note: Fixed assets : used for more than 1 year; long-term or non-current assets
Current assets : cash or used/converted to cash within 1 year; short-term
Current liabilities : amts repayable within the coming 1 year
Long-term liabilities : amts repayable more than 1 year later

Pg 3

Prepared by Yvonne Chan

Financial Accounting - Class L01

Additional Practice

Topic 1 - Analyse effects of business transactions on Accounting Equation


Accounting Equation : A = L +

OE

Accounting Equation : A = L + [ C - D + R - E ]
Indicate the effects of the following on the business Accounting Equation
Ensure that the Accounting Equation remains balanced
1) Invested cash $20,000 in the busines' bank account

A ; Bank by $20,000

C; Capital by $20,000

2) Withdrew $1,000 by cheque for personal use

D; Drawings by $1K
A; Bank by $1K
3) Purchased office equipment $8,000 by cheque

A; Equipment by $8K
A; Bank by $8K
4) Purchased furniture $7,000 on credit from AB Ltd

A; Furniture by $7K

L; Accounts Payable by $7K

5) Paid partial amount of $2,000 owing to AB Ltd by cheque

A; Bank by $2K

L; Accounts Payable by $2K

6) Received $18,000 for commission income by GIRO

A ; Bank by $18K

R; Commission income (R) by $18K

7) Paid various expenses; wages $9,000, rent $6,000 & utilities $3,000 by cheques

E; Wages Exp by $9K


E; Rent Exp by $6K
E; U0li0es Exp by $3K
A; Bank by $18K
8) Took up a 3-yr bank loan of $10,000

A ; Bank by $10K

L; Bank Loan by $10K

Pg 4

Prepared by Yvonne Chan

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