Written by Fengjuan Liu

Business Transaction Records of Fengqiang Consultancy Services

the following transactions occurred in Fengqiang Consultancy Services: a) Invested cash in the business, 50,000 in Jan. 1. b) Bought office equipments in cash from Bj Compan , 1,000 in Jan.!. c) Bought office supp"ies from #h Compan on credit, $,000 in Jan. 5. d) %eceived cash cheque from &j compan for se""ing office equipment, 500 in Jan. '. e) #o"d office equipment to (ee Compan on account, 500 in Jan. ). f) *aid part of the amount o+ing to #h Compan , 1,000 in Jan. 10. g) Co""ected cash from debtor ,e), 500 in Jan. 1$. h) %eceived professiona" fees from -u.i Compan , 10,000 in Jan. 1!. i) *aid cash for office rent, 1,000 in Jan. 15. j) *aid cash for staff sa"ar , !,000 in Jan. 1/. 0) Incurred and paid misce""aneous e.pense, 1,000 in Jan. 1). ") 1arned professiona" fees on account from 2j Compan , 5,000 in Jan. 13. m) Co""ected cash from its debtor ,"), 5,000 in Jan. $5. n) 4ou +ithdre+ cash for persona" use, 5,000 in Jan. !1. When these transactions were taken place in your co pany! what will you do" #ere! invested cash! office equip ents! goods! received cash! accounts receivable belongs to your assets$ %n addition! your capital! revenue! e&pense and withdrawals are recorded in your owner's equity$ (ccounts payable belongs to liabilities$ 1. Preparing accounting entry:

Assets =

ia!ilities " #$ner%s &quity

Written by Fengjuan Liu

'.

Preparing (eneral )ournal in ter*s of t+e a!ove accounting entries: (eneral )ournal Page 1 )ate *articulars
3 Cash Capital Co 5 cash bought office equip ent 4 6ffice supplies (ccounts *ayable *urchased office supplies on credit 7 Cash 6ffice 8quip ent Sold office equip ent 8 (ccounts 9eceivable 6ffice 8quip ent Sales on account 31 (ccounts *ayable Cash *artial pay ent for office supplies 30 Cash (ccounts 9eceivable Collected outstanding sales of office equip ent 35 Cash *rofessional Fee 9eceived professional fees 34 6ffice 9ent 8&pense Cash *aid cash for office rent 3: Salary e&pense Cash *aid cash for staff salary 38 ;iscellaneous e&pense Cash *aid 32 iscellaneous e&pense 4!111 4!111 (ccounts 9eceivable *rofessional Fee Services provided to be received later 3!111 3!111 5!111 5!111 3!111 3!111 31!111 31!111 411 411 3!111 3!111 411 411 411 411 0!111 0!111 enced business 3!111 3!111 6ffice equip ent

L*+

)r$,-.
41!111

Cr$,-.
41!111

/an$ 0112

Written by Fengjuan Liu 04 Cash (ccounts 9eceivable Collected outstanding services fees 53 )rawing Cash 6wner withdrew cash ,. Preparing (eneral edger -copying .ournal entries of (eneral )ournal to t+e accounts /ept in t+e (eneral edger0 (eneral edger Cash )ate 8&planation (ccount =o: 313 9ef$ )9$,-. Cr$,-. )r$,-. /an$ 0112 3 5 7 3 1 3 0 3 5 3 4 3 : 3 8 0 4 5 3 (ccounts 9eceivable )ate 8&planation 9ef$ (ccount =o: 310 )9$,-. Cr$,-. )r$,-. /an$ 0112 8 3 0 3 2 0 Sales of office equip ent on account Collected outstanding sales of office equip ent Serviced provided to be received later$ Collected outstanding services fees /3 /3 4!111 4!111 4!111 ? /3 /3 411 411 411 ? >alance Cr$,-. Co enced business /3 /3 /3 /3 /3 /3 /3 /3 /3 /3 /3 4!111 411 31!111 411 41!111 3!111 3!111 41!111 <2!111 <2!411 <8!411 <2!111 42!111 48!111 44!111 4<!111 42!111 44!111 >alance Cr$,-. <!111 <!111 4!111 4!111

>ought office equip ent Sold office equip ent *artial pay ent for office supplies Collected outstanding sales of office equip ent 9eceived professional fees *aid rent *aid staff salary *aid fees 6wner withdrew cash iscellaneous e&pense Collected outstanding services

3!111 5!111 3!111 <!111

Written by Fengjuan Liu 4 6ffice 8quip ent )ate 8&planation 9ef$ (ccount =o: 315 )9$,-. Cr$,-. )r$,-. /an$ 0112 5 7 8 >ought office equip ent Sold office equip ent Sales of office equip ent on credit 6ffice Supplies )ate 8&planation 9ef$ (ccount =o: 31< )9$,-. Cr$,-. )r$,-. /an$ 0112 4 *urchased office supplies on credit (ccounts *ayable )ate 8&planation 9ef$ (ccount =o: 013 )9$,-. Cr$,-. )r$,-. /an$ 0112 4 3 1 Capital )ate 8&planation 9ef$ *urchased office supplies on credit *artial pay ent for office supplies (ccount =o: 513 )9$,-. Cr$,-. )r$,-. /an$ 0112 )rawing )ate 8&planation 9ef$ 3 Co enced business /3 (ccount =o: 510 )9$,-. Cr$,-. )r$,-. /an$ 0112 5 3 *rofessional Fees )ate 8&planation 9ef$ (ccount =o: <13 )9$,-. Cr$,-. )r$,-. /an$ 0112 3 5 3 2 6ffice 9ent 8&pense )ate 8&planation 9ef$ (ccount =o: 413 )9$,-. Cr$,-. )r$,-. >alance Cr$,-. 9eceived professional fees Serviced provided to be received later /3 /3 31!111 4!111 31!111 34!111 >alance Cr$,-. 6wner withdrew cash /3 <!111 <!111 >alance Cr$,-. 41!111 >alance Cr$,-. 41!111 /3 /3 3!111 0!111 >alance Cr$,-. 0!111 3!111 /3 0!111 >alance Cr$,-. /3 /3 /3 3!111 411 411 3!111 411 ? >alance Cr$,-.

0!111

Written by Fengjuan Liu /an$ 0112 3 4 Salary 8&pense )ate 8&planation 9ef$ (ccount =o: 410 )9$,-. Cr$,-. )r$,-. /an$ 0112 3 : ;iscellaneous 8&pense )ate 8&planation 9ef$ (ccount =o: 417 )9$,-. Cr$,-. )r$,-. /an$ 0112 3 8 special .ournals are created to enter infor*ation on frequently occurring transactions suc+ as sales1 purc+ases1 cas+ receipts and cas+ pay*ents. T+ey usually co*prise t+e ite*s listed in t+e follo$ing ta!le: /ournal Sales /ournal *urchases /ournal Cash 9eceipts /ournal Cash *ay ents /ournal Sales /ournal )ate %nvoice (ccounts )ebited 9ef$ 9ecord all cash pay ents 9ecord all cash receipts @se 9ecord credit sales 9ecord credit purchases Corresponding )ouble 8ntry )r: (ccounts 9eceivable Cr: Sales (ccounts )r: *urchases (ccounts Cr: (ccounts *ayable )r: Cash Cr: )r: Sales! *urchases! (ccounts (ccounts 9eceivable! Capital! etc$ *ayable! 8&penses! etc$ Cr: Cash S?3 )r$ (ccounts 9eceivable Cr$ Sales /an$ 8 32 Botal Lee Co pany =j Co pany A A 411 4!111 4!411 ,315.,<13. *urchases /ournal )ate (ccount Credited 9ef$ (ccount s *ayable Cr$,-. /an$ 4 Sh A 0!111 6ffice *urchas es )r$,-. Supplie s )r$,-. (ccount *?3 Sundry (ccounts )r$,-. 9ef $ 31 0!111 ( t$ *aid iscellaneous e&penses /3 3!111 3!111 >alance Cr$,-. *aid staff salary /3 5!111 5!111 >alance Cr$,-. *aid office rent /3 3!111 3!111

2. Preparing Special )ournals according to Source 3ocu*ents:

Written by Fengjuan Liu Co pany Botal 0!111 Supplies < 0!111

Cash 9eceipts /ournal )ate (ccounts Credited 9ef$ Cash )r$,-. Sales )iscounts )r$,-. /an$ 3 7 30 35 34 Botal Capital 6ffice equip ent Lee Co pany *rofessional Fee =j Co pany A 4!111 77!111 4!111 4!411 A <13 411 31!111 411 513 315 41!111 411 (ccounts 9eceivabl e Cr$,-. Sales

C9?3 Sundry (ccount Cr$,-. 41!111 411 (ccount s Cr$ ,-.

31!111

71!411

Cash *ay ent /ournal )ate Cheq ue /an$ 5 31 34 3: 38 53 Botal 6ffice 8quip ent Sh Co pany 9ent 8&pense Salary 8&pense ;iscellaneous 8&pense )rawing 510 <!111 33!111 3!111 315 A 413 410 417 (ccount )ebited 9ef$ Cash Cr$,-. 3!111 3!111 3!111 5!111 3!111 3!111 *urchases )iscounts Cr$,-.

C*?3 (ccounts *ayable )r$,-. Sundry (CC )9$,-. 3!111 3!111 5!111 3!111 <!111 31!111

4. Posting transactions fro* )ournal to (eneral edger:

We get the following general ledger of the de onstration co pany according to the above special journal: Cash )ate /an$ 0112 53 9ef$ C9?3 )r$,-. 77!111 (ccount =o: 313 Cr$,-. )r$,-. 77!111 >alance Cr$,-.

Written by Fengjuan Liu (ccounts 9eceivable )ate /an$ 0112 53 C9?3 4!411 ? (ccount =o: 315 9ef$ 53 53 53 6ffice Supplies )ate /an$ 0112 (ccounts *ayable )ate /an$ 0112 Capital )ate /an$ 0112 )rawing )ate /an$ 0112 Sales )ate /an$ 0112 53 9ef$ C9?3 )r$,-. (ccount =o: <13 Cr$,-. )r$,-. 31!411 >alance Cr$,-. 31!411 53 9ef$ C9?3 )r$,-. 77!111 (ccount =o: 510 Cr$,-. )r$,-. 77!111 >alance Cr$,-. 53 9ef$ C9?3 )r$,-. (ccount =o: 513 Cr$,-. )r$,-. 41!111 >alance Cr$,-. 41!111 53 9ef$ *?3 )r$,-. 0!111 (ccount =o: 013 Cr$,-. )r$,-. >alance Cr$,-. 0!111 53 9ef$ *?3 0!111 )r$,-. C*?3 C9?3 S?3 3!111 411 411 )r$,-. Cr$,-. )r$,-. /an$ 0112 411 ? (ccount =o: 31< Cr$,-. )r$,-. 0!111 >alance Cr$,-. 3!111 >alance Cr$,-. 53 9ef$ CS?3 4!411 )r$,-. (ccount =o: 310 Cr$,-. )r$,-. 4!411 >alance Cr$,-.

6ffice 8quip ent )ate

Written by Fengjuan Liu

6ffice 9ent 8&pense )ate /an$ 0112 Salary 8&pense )ate /an$ 0112 ;iscellaneous 8&penses )ate /an$ 0112 53 9ef$ C*?3 3!111 )r$,-. 53 9ef$ C*?3 5!111 )r$,-. 53 9ef$ C*?3 3!111 )r$,-.

(ccount =o: 413 Cr$,-. )r$,-. 3!111 >alance Cr$,-.

(ccount =o: 410 Cr$,-. )r$,-. 5!111 >alance Cr$,-.

(ccount =o: 417 Cr$,-. )r$,-. 3!111 >alance Cr$,-.

5. Posting transactions to Su!sidiary edger:

We get the following su!sidiary ledger of the e&a ple co pany according to the above sales .ournal: (ccounts 9eceivable Subsidiary Ledger Lee Co pany )ate /an$ 0112 =j Co pany )ate /an$ 0112 We get the following su!sidiary ledger of the e&a ple co pany according to the above purc+ases .ournal: (ccounts *ayable Subsidiary Ledger Sh Co pany )ate /an$ 0112 We get the following su!sidiary ledger of the e&a ple co pany according to the above cas+ receipts .ournal: (ccounts 9eceivable Subsidiary Ledger 53 9ef$ *?3 )r$,-. 0!111 (ccount =o: 0133 Cr$,-. )r$,-. >alance Cr$,-. 0!111 53 9ef$ S?3 4!111 )r$,-. (ccount =o: 3100 Cr$,-. )r$,-. 4!111 >alance Cr$,-. 53 9ef$ S?3 411 )r$,-. (ccount =o: 3103 Cr$,-. )r$,-. 411 >alance Cr$,-.

Written by Fengjuan Liu Lee Co pany )ate /an$ 0112 =j Co pany )ate /an$ 0112 We get the following su!sidiary ledger of the e&a ple co pany according to the above cas+ pay*ents .ournal: (ccounts *ayable Subsidiary Ledger Sh Co pany )ate /an$ 0112 53 9ef$ C*?3 3!111 )r$,-. (ccount =o: 0133 Cr$,-. )r$,-. 3!111 >alance Cr$,-. 53 9ef$ C9?3 )r$,-. 4!111 (ccount =o: 3100 Cr$,-. )r$,-. >alance Cr$,-. 4!111 53 9ef$ C9?3 )r$,-. 411 (ccount =o: 3103 Cr$,-. )r$,-. >alance Cr$,-. 411

6. Preparing t+e Trial Balance:

general ledger Fengqiang Consultancy Services Trial Balance As at ,1 )anuary '778 Corrections )r$,-. Cash 6ffice Supplies (ccounts *ayable Capital! /an$ 53! 0112 )rawing *rofessional fees 6ffice 9ent 8&penses Salary 8&penses ;iscellaneous 8&penses Botal 77!111 77!111 5!111 3!111 3!111 <!111 34!111 44!111 0!111 3!111 41!111 Cr$,-. )r$,-. Cr$,-. Corrected Brial >alance )r$,-. Cr$,-.

8. Carefully Checking source documents and accounting entries, finding out errors and correcting them. 1) Error of Omission a) A transaction is completely omitted in the books. E.g. A credit sale for a computer of $4,000 was not recorded.

Written by Fengjuan Liu

DR CR Accounts Recei a!le "#,$$$ Computer "#,$$$ !) For example, Fengqiang onsultanc! "er#ices paid a $$,%00 rent on &anuar! $ for one !ear's rent in ad#ance. Dr Cr %repaid Rent "1,&$$ Cash "1,&$$ At the end of &anuar!, one month of rent has been used up. (hen an ad)ustment has to be made* Dr Cr Rent E'pense "1$$ %repaid Rent "1$$ c) E.g. the compan! has $%,000 of +ffice "upplies at the beginning of &anuar!. +n ,$ &anuar!, onl! $$-00 of +ffice "upplies are still on hand. $,00 of the office supplies has been consumed. Ad)ustment entr!* Dr Cr Office (upplies E'pense ")$$ Office (upplies ")$$ .ifferentiate between +ffice "upplies and +ffice "upplies Expense. Office (upplies is classified as an asset account and appears in the /alance "heet, whereas Office (upplies E'pense is an expense account and appears in the 0ncome "tatement. d) *nearned Re enue 1 a lia!ility account. 0t records re#enue which is recei#ed in the current accounting period but is yet to !e earned, e.g. a ser#ice fee of $$%,000 has been recei#ed on &anuar! $. in ad ance for ser#ice to be pro#ided from &anuar! to .ecember* Dr Cr Cash "1&,$$$ *nearned (er ice +ees "1&,$$$ 0f ser#ice for one month has been rendered to &anuar! ,$, ser#ice fees earned should be $$%,0002$% or $$,000. Ad)usting entr! is needed to satisf! the re#enue recognition concept* Dr Cr *nearned (er ice +ees "1,$$$ (er ice +ees ,Re enue) "1,$$$ e) Accrued Re enue 1 re#enue that has been earned during the accounting period but has not yet been received or recorded. 0t excludes sales on credit as it is alread! taken up in Accounts 3ecei#able account. E.g. 3ent 3ecei#able, ommission 3ecei#able, 0nterest 3ecei#able. E.g. Fengqiang onsultanc! "er#ices sa#ed $$00,000 at $%4 annual interest in the bank in &anuar! $. /ank interests are paid once at the end of e#er! quarter. 0nterest 3ecei#able for &anuar! is $$00,0005$%42$%6$$,000. Dr Cr Cash in -ank "1$$,$$$ Cash "1$$,$$$ Dr Cr .nterest Recei a!le "1,$$$ .nterest Re enue "1,$$$ (he difference between prepaid expenses and accrued expenses* %repaid e'penses are expenses paid in ad ance of consumption. 7repaid expense accounts are assets. Accrued e'penses are those for which the consumption precedes the payment. Accrued expense accounts are

f)

Written by Fengjuan Liu

lia!ilities. 8amel!, Accrued e'pense is expense that has been incurred during the accounting period to earn re#enue but has not been paid or recorded. Examples of Accrued or unrecorded expenses* Accrued 0nterest 9or Interest Payable:, Accrued "alaries 9or Salary Payable:. 1 E.g. the compan! has borrowed $$00,000 on &anuar! $ at ;4 annual interest. Accrued interest expense for &anuar! is $$0,000 x 0.0;2$% or $<00* Dr Cr Cash "1$$,$$$ -ank loan "1$$,$$$ Dr Cr .nterest E'pense "/$$ .nterest %aya!le "/$$ e.g. 0f e#er! one of fi#e emplo!ees is paid $40 e#er!2per da!. (he! are paid weekl!, i.e. on e#er! Frida!. &an ,$ is a (uesda!. (hen, % da!s of that week will appl! to &an and , da!s to Feb. "o, $400 would appl! to &an 9=onda! and (uesda!: and $;00 to Feb 9>ednesda! to Frida!:. At the end of &an., the entries would be* Dr Cr (alary E'pense "#$$ (alary %aya!le "#$$ g) 0on1current assets 9e.g. ?and, /uilding, =achiner!: ha#e a longer life expectanc!. (heir original costs are shown on the financial statement. (o achie#e a proper matching, the cost of these assets must be apportioned as expenses in the accounting periods during which the! are used to generate re#enues. (his apportioned expense is Depreciation E'pense. (o keep the original costs of the asset and maintain a running total of the depreciation allocated, a new account Accumulated Depreciation is created. (his account is a contra asset. E.g. the original cost of the office equipment is $$0,000 and its depreciation expense is $%00. (he ad)usting entr! would be* Dr Cr Depreciation E'pense "&$$ Accumulated Depreciation "&$$ (he +ffice Equipment account would be shown in the balance sheet as follows* Office E2uipment "1$,$$$ 3ess4 Accumulated Depreciation , &$$) "5,8$$ &) Error of Original Entry .ouble entries are recorded with an incorrect amount and are posted accordingl!. h) E.g. cash pa!ment for purchasing office equipment from /) ompan! amounting to $$0,000 was wrongl! recorded as $$,000. DR CR Office E2uipment,"1$,$$$ 1 "1,$$$) "5,$$$ Cash "5,$$$

8. Preparing Supple*entary (eneral )ournal: Supple*entary (eneral )ournal

Page 1

Written by Fengjuan Liu 3ate /an$ 0112 53 53 53 53 53 53 53 53 53 53 53 53 53 Particulars (ccounts 9eceivable Co puter *repaid 9ent Cash 9ent 8&pense *repaid 9ent 6ffice Supplies 8&pense 6ffice Supplies Cash @nearned Service Fees @nearned Service Fees Service Fees Cash in >ank Cash %nterest 9eceivable %nterest 9evenue Cash >ank Loan %nterest 8&pense %nterest *ayable Salary 8&pense Salary *ayable )epreciation 8&pense (ccu ulated )epreciation 6ffice 8quip ent Cash 2!111 2!111 011 011 <11 <11 411 411 311!111 311!111 3!111 3!111 311!111 311!111 3!111 3!111 30!111 30!111 511 511 511 511 5!711 5!711 P9 3r.-:0 <!111 <!111 Cr.-:0

17. Preparing Ad.usted Trial Balance:

Fengqiang Consultancy Services Brial >alance (s at 53 /anuary 0112 Corrections )r$,-. Cash (ccounts 9eceivable 6ffice 8quip ent 6ffice Supplies Cash in >ank Co puter %nterest 9eceivable 3!111 0!111 311!111 <!111 3!111 44!111 <!111 2!111 511 Cr$,-. )r$,-. Cr$,-. 711 Corrected Brial >alance )r$,-. 4<!<11 <!111 2!111 3!:11 311!111 <!111 Cr$,-.

Written by Fengjuan Liu *repaid 9ent (ccu ulated )epreciation (ccounts *ayable Salary *ayable %nterest *ayable >ank Loan @nearned Service Fees Capital! /an$ 53! 0112 )rawing *rofessional fees Service Fees %nterest 9evenue 6ffice 9ent 8&penses Salary 8&penses 6ffice Supplies 8&pense %nterest 8&pense )epreciation 8&pense ;iscellaneous 8&penses Botal 77!111 77!111 332!111 332!111 38<!311 38<!31 1 3!111 411 011 411 011 3!111 3!111 5!111 511 <11 511 <!111 34!111 3!111 3!111 3!511 5!<11 511 41!111 <!111 34!111 3!111 3!111 41!111 3!111 <11 411 311!111 33!111 3!111 <11 411 311!11 1 33!111 5!511 011 5!511 011

11. Preparing ;or/s+eet:

Fengqiang Consultancy Services Worksheet (s at 53 /anuary 0112 (ccount Bitle @nadjusted Brial >alance )r$,-. Cr$,-. )r$,-. Cr$,-. (djust ents (djusted Brial >alance )r$,-. Cr$,-.

Written by Fengjuan Liu Cash (ccounts 9eceivable 6ffice 8quip ent 6ffice Supplies Cash in >ank Co puter %nterest 9eceivable *repaid 9ent (ccu ulated )epreciation (ccounts *ayable Salary *ayable %nterest *ayable >ank Loan @nearned Service Fees Capital! /an$ 53! 0112 )rawing *rofessional fees Service Fees %nterest 9evenue 6ffice 9ent 8&penses Salary 8&penses 6ffice Supplies 8&pense %nterest 8&pense )epreciation 8&pense ;iscellaneous 8&penses 77!111 77!111 332!111 332!111 38<!311 38<!311 3!111 411 011 411 011 3!111 3!111 5!111 511 <11 511 <!111 34!111 3!111 3!111 3!511 5!<11 511 41!111 <!111 34!111 3!111 3!111 41!111 3!111 <11 411 311!111 33!111 3!111 <11 411 311!111 33!111 3!111 5!511 011 0!111 311!111 <!111 3!111 5!511 011 44!111 <!111 2!111 511 711 4<!<11 <!111 2!111 3!:11 311!111 <!111

Source docu*ents are the supporting original docu ents of any transactions$ )ournal entries are prepared based on the details provided by the source docu ents$ ( journal entry is an analysis of the effects of the transactions on the accounts! identifying the debit and credit effects$ A general .ournal is the book of original entry for all ite s other than those for cash or goods! which are recorded in special journals$ T+e general ledger is a collection of the business entity's accounts$ While t+e general .ournal is organiDed as a chronological record of transactions! the ledger is organiDed by account$ Bhe subsidiary ledger is a group of si ilar accounts whose co bined balances equal the balance in a specific general ledger account$ Bhe general ledger account that su balances is called a control account$ T+e $or/ s+eet is not a financial report$ %t is an infor al tool for the accountant to deter ine adjust ents! net inco e or loss! and whether the books balance$( worksheet is used to present a clear overall picture of the ledger accounts and all necessary adjust ents$( $or/s+eet is a 31?colu n sheet that lists all the accounts fro the general ledger that have a balance or will have a balance after the ariDes a subsidiary ledger's account

Written by Fengjuan Liu adjusting entries$ Fengqiang Consultancy Services Worksheet (s at 53 /anuary 0112 (ccount Bitle @nadjusted Brial >alance
)r$,-. Cash 44!11 1 (ccounts 9eceivable 6ffice 8quip ent 6ffice Supplies Cash in >ank Co puter %nterest 9eceivable *repaid 9ent (ccu ulated )epreciation (ccounts *ayable Salary *ayable %nterest *ayable >ank Loan @nearned Service Fees Capital! /an$ 53! 0112 )rawing *rofessional fees <!111 34!11 1 Service Fees %nterest 9evenue 6ffice 9ent 8&penses Salary 8&penses 6ffice Supplies 8&pense %nterest 8&pense )epreciation 8&pense ;iscellaneous 8&penses 3!111 3!111 3!111 411 011 411 011 411 011 5!111 <11 511 5!<11 511 5!<11 511 3!111 511 3!111 3!111 3!511 3!111 3!111 3!511 3!111 3!111 41!11 1 <!111 34!111 34!111 <!111 41!111 41!111 <11 411 311!111 33!111 <11 411 311!111 33!111 <11 411 311!111 33!111 3!111 3!111 3!111 5!511 011 5!511 011 5!511 011 3!111 0!111 311!111 <!111 3!111 2!111 511 2!111 3!:11 311!111 <!111 3!111 2!111 3!:11 311!111 <!111 <!111 <!111 <!111 Cr$,-. )r$,-. Cr$,-. 711

(djust ents

(djusted Brial >alance

)r$,-. 4<!<11 Cr$,-.

%nco e State ent

)r$,-. Cr$,-.

>alance Sheet
)r$,-. 4<!<11 Cr$,-.

Written by Fengjuan Liu

77!11 1 77!11 1 7!:11 =et %nco e 31!511 3:!111 3:!111 3::!<11 3:!111 3::!<11 37:!311 31!511 3::!<11 332!111 332!111 38<!111 38<!111

1'. Preparing Financial State*ent:

Written by Fengjuan Liu

1,. Preparing ad.usted Financial State*ent 1' 1, ;or/s+eet

Written by Fengjuan Liu

12. )ournali<ing and Posting Closing &ntries: List the four steps for closing the te porary accounts$ Step 3: Close revenue accounts to %nco e Su ary$ Step 0: Close e&pense accounts to %nco e Su ary$ Step 5: Close %nco e Su ary to the owner's capital account$ Step <: Close )rawing to the owner's capital account$ 3r. Cr. )an. ,11 '778 Professional Fees 141777 Service Fees 11777 =nterest Revenue 11777 =nco*e Su**ary 161777 =nco*e Su**ary 51677 #ffice Rent &>pense Salary &>pense #ffice Supplies &>pense =nterest &>pense 3epreciation &>pense ?iscellaneous &>pense =nco*e Su**ary Fengqiang1 Capital =nco*e Su**ary 171,77 171,77 21777

11,77 ,1277 ,77 477 '77 11777

Written by Fengjuan Liu

Fengqiang1 3ra$ing 21777 14. Preparing a post@closing trial !alance. *ost?closing trial balance is a listing of all per anent accounts together with their debit or credit balances$ (ccounts with debit balance ust equal accounts with credit balances$ %t proves that the accounting equation is in balance$

Fengqiang Consultancy Services C+art of Accounts Assets: 313 Cash 310 (ccounts 315 6ffice 8quip ent 31< 6ffice Supplies 314 Cash in >ank 317 Co puter 31: %nterest 9eceivable 318 *repaid 9ent 312 (ccu ulated )epreciation ia!ilities: 013 (ccounts *ayable 010 Salary *ayable 015 %nterest *ayable 01< >ank Loan 014 @nearned Service Fees 1. Steps of t+e accounting cycle: 9ecord infor ation on source docu ents ?E prepare general journals ?E post to ledgers ?E prepare a trial balance ?E prepare adjusting journal entries ?E prepare an adjusted trial balance ?E prepare &>penses: 413 6ffice 9ent 8&pense 410 Salary 8&pense 415 %nterest 8&pense 41< 6ffice Supplies 8&pense 414 )epreciation 8&pense 417 ;iscellaneous 8&penses Revenue: <13 *rofessional fees <10 Service Fees <15 %nterest 9evenue 9eceivable #$ner%s &quity: 513 Capital 510 )rawing

Written by Fengjuan Liu closing entries ?E prepare a post?closing trial balance ?E prepare financial state ents *$::$ T+e Accounting Cycle: a$ Bransaction occurs and infor ation is recorded on a Source )ocu ent$ b$ Source docu ent infor ation is recorded in a Feneral /ournal$ c$ Bransaction infor ation is posted fro the Feneral /ournal to the Ledger$ Bhere are different types of ade$ Bhey are ledger such as general ledger and subsidiary ledgers$ d$ ( Brial >alance is prepared at the end of the period and necessary adjust ents are called >alance )ay (djust ents$ e$ 8&penses! 9evenue and )rawing accounts are closed and a post?closing trial balance is prepared$ f$ Financial State ents are prepared$ Bhree financial state ents are prepared: ,3. %nco e State ent ,also called *rofit and Loss State ent. ,0. State ent of 6wner's 8quity$ ,5. >alance Sheet$ 354

'.Four !asic types of accounts require ad.usting entries: 3. prepaid e&penses 0. unearned revenue 5. accrued revenue <. accrued e&penses ;+en custo*ers are una!le to settle t+eir outstanding de!ts -:A7701 t+e unpaid a*ounts are referred to as Bad 3e!ts. Bad 3e!t is a nor al business e&pense$ %t is charged as an e&pense when calculating the co pany's profit and loss for the period$ Bhe adjusting entry is as follows: 3r Cr Bad 3e!ts &>pense :A77 Accounts Receiva!le :A77 Bo achieve the desired atching of revenue and e&penses for an accounting period! which the sales revenue is recogniDed! an esti ated a ount of the related dou!tful de!t e>pense is recorded$ 8$g$ the esti ated bad debt e&pense is -811$ Bhen the journal entry is: 3r Cr 3ou!tful 3e!ts &>pense :A77 Provision for 3ou!tful 3e!ts :A77 Bhe *rovision for )oubtful )ebts is a negative current asset and is deducted fro the (ccounts 9eceivable account: Accounts Receiva!le :471777 ess: Provision for 3ou!tful 3e!ts A770 :2'1777 ;+en it is confor*ed t+at t+e custo*er $ill not pay t+e outstanding de!t1 t+en an entry $ill !e needed to ad.ust t+e Accounts Receiva!le account: 3r Cr

Written by Fengjuan Liu

Provision for 3ou!tful 3e!ts Accounts Receiva!le

:A77 :A77

Preparation of =nco*e State*ent for a trading co*pany: The typical format of income statement for a trading company is as shown below: ABC Trading Ba*e =nco*e State*ent For t+e Cear &nded 3ece*!er ,11 '7D1 Sales -88!888 Less: Cost of Foods Sold9 43!:11 Fross *rofit 5:!388 Less: 6perating 8&penses: Selling G )istribution cost 8!711 (d inistrative e&penses :!541 34!241 6perating *rofit 03!058 6ther %nco eC8&penses: %nterest 8&pense ,3!011. 6ther inco e ,net. 0!411 3!511 =et *rofit >efore Ba& 00!458 %nco e Ba& <!41: *rofit (fter Ba& -38!153 Cost of 6oods #o"d: %nventory of a trading co pany consists of goods on hand at the beginning of the accounting period and those on hand at the end of the accounting period$ Beginning inventory is added to purchases to arrive at the Cost of (oods Availa!le for Sale$ &nding inventory is deducted fro the Cost of Foods (vailable for Sale to arrive at Cost of Foods Sold: Cost of (oods Availa!le for Sale=#pening Stoc/ " Purc+ases Cost of (oods Sold=Beginning Stoc/ " Purc+ases EClosing Stoc/ 6nce the cost of goods sold is known! it can be deducted fro sales to calculate t+e gross profit$ (ross Profit=Sales E Cost of (oods Sold Bet Profit=(ross E &>penses &.g. *eter Super arket bought goods its suppliers costing -81!111 in 01H3$ Bhere is opening stock of -01!111 on /anuary 3 01H3 and there is closing stock of -51!111 on )ece ber 53 01H3$ Calculate the Cost of Foods Sold for 01H3$ Beginning =nventory -01!411 (dd: *urchases <4!111 Cost of (oods Availa!le for Sale 74!411 8nding %nventory 35!811 Cost of (oods Sold -43!:11 8&pense represents the decrease in assets ,or increase in liabilities. as a result of efforts ade to produce revenue$ 8&penses can be classified into different categories such

Written by Fengjuan Liu

as: a$ Cost of Sales is the cost incurred in purchasing or anufacturing the product! which an organiDation is selling plus any other e&pense incurred in bringing the product in salable condition$ %t contains I *urchase of goods Wages paid to e ployees for anufacturing of goods (ny ta& or freight paid on purchases (ny e&pense incurred on carriage or transportation of purchased ite s! etc$ b$ Selling and )istribution 8&penses are the e&penses incurred directly in connection with the sale and distribution of goods$ %t contains I Bransportation or carriage of goods sold Ba& or freight paid on sale Wages and salary of sales staff (dvertising! etc c$ (d inistration and Feneral 8&penses are the e&penses incurred in running a business efficiently and effectively$ %t contains I *ay ent of office rent *ay ent of utility bills Salary of e ployees Feneral office e&penses 9epair and aintenance of office equip ent )epreciation e&pense of office building! etc$ d$ Financial 8&penses are the interest paid on bank loan and charges deducted by bank on business' bank accounts$ %t includes I >ank charges >ad debts! etc

9eporting 6wner's 8quity in the Financial 9eport: 6wner's 8quity represents the owner's clai s against the business assets$ 3$ Sole proprietors+ip is owned by one person$ Bherefore! the owner's equity section of the balance sheet includes only one ite ? the equity of the owner$ 8$g$ if Fengqiang Consultancy Services is organiDed as a sole proprietorship! the owner's equity in the balance sheet would appear as follows: 6wner's 8quity Fengqiang! Capital -47!511 0$ For business organiDed as a partners+ip! the owner's equity is usually rena ed Partners% &quity$ *artner's 8quity separately lists the a ount of each partner's equity in the business$ For Wong has been in partnership with Lee in Legal Consultancy Services$ >oth Wong and Lee contributed an equal a ount of cash ,-41!111. and shared equally the net inco e ,-31!111.! the partners' equity section of the balance sheet would be: *artner's 8quity Wong! Capital -41!111 Lee! Capital 41!111 Botal *artner's 8quity -311!111

Written by Fengjuan Liu

5$ 6wner's 8quity in a co*pany is separately the equity of each stockholder$ 6wner's 8quity in a co pany is also referred to as stoc/+olders% equity or s+are+olders% equity$ Capital stoc/ or contri!uted capital represents the a ount that the stockholders originally invested in the business in e&change for shares of the co pany's stock$ %n addition to contri!uted capital! there can be other co ponents of owner's equity! such as retained earnings ,or retained profits.! general reserves! etc$ Retained &arnings increase as the business cu ulates net inco e over the years$ e$g$ 6wner's 8quity Capital Stock -311!111 9etained 8arnings 4!111 Botal Stockholders' 8quity -314!111 3ividends are distri!utions of cash to shareholders. 3eclaring dividends reduces retained earnings. 3$ Per*anent accounts are assets! liabilities and capital accounts$ Bhey have ongoing balances fro one accounting period to the ne&t$ Bhey are not closed out at the end of the accounting period$ 8&a ples of per anent accounts are cash! accounts payable! inventory account etc$ 0$ %n t+e dou!le@entry syste* of accounting! each transaction is recorded in such a way that the total debits equal to total credits$ %n ost cases! there is one debit and one credit account affected! and thus dollars a ount will be equal$ 5$ A+e trial !alance is a list of all accounts showing the title and the ending balance$ Bhe purpose of the trial balance is to show if total debits equal total credits$ <$ Sales 9eturns ,or 9eturn %nwards.: goods sold that are returned by the custo er to the businessJ it is a Kcontra' against the Sales account to arrive at net sales$ %t is therefore debit in nature$ 4$ Purc+ase Returns ,or 9eturn 6utwards.: goods purchased that are returned by the business to the suppliersJ it is a Kcontra' against the *urchases account to arrive at net purchases$ %t is therefore credit in nature$