ACC203 Financial Accounting 2

Workshop 1: Demonstrating an understanding of

the accounting process

COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969

WARNING

Material adapted from Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., Tan, R. and Willett, R., (2012) Accounting. 7th edn. Australia: Pearson Higher Education and Financial accounting / John Hoggett, John Medlin, Keryn Chalmers, Claire

Beattie, Andreas Hellmann, Jodie Maxfield Tenth edition. John Wiley & Sons Australia, Ltd

This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act).

The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act.

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2

Inter-teaching Workshops

• What is Inter-teaching? – Inter-teaching includes:

• guided independent learning • student-paced small group tutorial discussion, and • clarification by the lecturer that follows student discussion and feedback.

Academic misconduct

Academic misconduct refers to any form of dishonesty by a student relevant to the student’s learning experience at Kaplan. It includes but is not limited to:

– any attempt by a student to submit work for an assessment that is not their own (e.g. plagiarism, paraphrasing, non-referencing, ghost writing)

– the reuse of significant portions of one’s own work, previously submitted for assessment in another subject or course, or for a different question in the same course without acknowledging that one is doing it (self-plagiarism)

– any form of collusion between students or other individuals other than authorised collaboration

– any act that may impair or hinder the learning or assessment performance of others – any action contrary to the study, assessment and examination instructions given by

Kaplan – assisting or attempting to assist any other student to act dishonestly in relation to an

assessment or part of an assessment.

Plagiarism

Plagiarism refers to: – any use or attempt to use the work, words or ideas of others without

attribution of the author, or – any attempt to pass off the work, words or ideas of others as the writer’s

own.

Plagiarism also extends to reusing significant portions of one’s own work, previously submitted for a different assessment without acknowledging that one is doing it. This is known as self-plagiarism.

Collusion

Collusion occurs when a student works with others, contrary to Kaplan’s instructions, in an attempt to gain an unfair advantage in an assessment task.

Collusion includes: – joint effort in an assessment (unless it is authorised collaboration) – copying of material prepared by another person for use in an assessment – undue assistance from any other person in an assessment – making assessment answers or material available to other students for viewing

or copying, either knowingly or unknowingly. It is the responsibility of students to ensure their assessment material is secure and not easily accessible to other students.

Contract Cheating

Contract cheating, otherwise known as ghost writing, occurs when a student engages (or attempts to engage) the services of another individual to author an assignment on the student’s behalf. A student can be guilty of contract cheating irrespective of whether payment is made or the services are received.

A student may be investigated for contract cheating where: • the student posts an advertisement seeking a ghost writer. • a ghost writer forwards correspondence to Kaplan regarding a student’s enquiry. • a student submits work that is significantly different in style to the student’s prior work.

Any questions?

Learning Objectives

1. Describe the accounting information used to record, classify and summarize transactions, including the use of the accounting equation.

2. Outline the rules of debit and credit used in double-entry accounting and how to apply these rules in preparing journal entries.

3. Identify and prepare the different types of adjusting entries.

Class Discussion Sam, an experienced accountant is helping Ben who is taking introductory accounting. Sam explains to Ben that debits are used to record increases in accounts and credits to record decreases. Ben is confused and seeks your advice. Is Sam correct? When are debits increases? When are debits decreases? When are credits increases? When are credits decreases? Give account examples to explain your answer.

Learning Objectives 1. Describe the accounting information used to record, classify and

summarize transactions, including the use of the accounting equation.

2. Outline the rules of debit and credit used in double-entry accounting and how to apply these rules in preparing journal entries.

3. Identify and prepare the different types of adjusting entries.

Accounting Equation

Accounting information is founded on two equations:

BALANCE SHEET

1. Assets – Liabilities = Owners’ Equity

An asset is a resource that a business entity owns

An obligation is a resource that a business entity owes

The resources which the owner contributes into or withdraws from the entity

Accounting Equation

We could rewrite Accounting Equation 1 into two other forms:

Liabilities + Owners’ Equity = Assets

Assets – Owners’ Equity = Liabilities

Accounting Equation

Accounting information is founded on two equations:

INCOME STATEMENT

2. Revenue – Expenses = Profit or Loss

Amount of income received by the business entity

Amount of costs incurred for the day to day running of the business entity

Profit = Revenue > Expenses

Loss = Expenses > Revenue

Why is the purpose of the accounting equation?

Income Statement

Financial Statements

The accounting equation forms the financial statements

Balance Sheet

Statement of cashflows

Accruals Basis Cash Basis

We record transactions when they take place or occur.

We record transaction when there is an actual movement of cash. This topic will be discussed in workshop 3

Class Activity Calculate the missing figures in the table below:

Assets = Liabilities + Owners’ Equity

$50,000 $10,000 (a)

(b) $60,000 $78,000

$95,000 (c) $20,000

$9,300 $6,500 (d)

Learning Objectives 1. Describe the accounting information used to record, classify and

summarize transactions, including the use of the accounting equation.

2. Outline the rules of debit and credit used in double-entry accounting and how to apply these rules in preparing journal entries.

3. Identify and prepare the different types of adjusting entries.

Double Entry System

Assets – Liabilities = Owners’ Equity

Assets are on the debit side

(left side of the T-Account).

Liabilities are on the credit side (right side

of T-Account).

Owners’ Equity are on the credit side (right side

of T-Account).

T- Account

Account Title

DEBIT (DR)

CREDIT (CR)

LEFT RIGHT

Rule of Thumb – Double Entry System

Assets

Debit +

Credit –

An asset has a Dr balance in nature, therefore to increase an Asset, the T-Account needs to be debited

An asset has a Dr balance in nature, therefore to decrease an Asset, the T-Account needs to be credited

Rule of Thumb – Double Entry System

Liabilities

Debit –

Credit +

A liability has a Cr balance in nature, therefore to increase a liability, the T-Account needs to be credited.

A liability has a Cr balance in nature, therefore to decrease a liability, the T-Account needs to be debited.

Rule of Thumb – Double Entry System

Owner’s Equity

Debit –

Credit +

Owner’s Equity has a Cr balance in nature, therefore to increase Owner’s Equity, the T-Account needs to be credited.

Owner’s Equity has a Cr balance in nature, therefore to decrease Owner’s Equity, the T-Account needs to be debited.

Rule of Thumb – Double Entry System

Revenues

Debit –

Credit +

A Revenue has a Cr balance in nature, therefore to increase a revenue, the T-Account needs to be credited.

A Revenue has a Cr balance in nature, therefore to decrease a revenue, the T-Account needs to be debited.

Rule of Thumb – Double Entry System

Expenses

Debit +

Credit –

An expense has a Dr balance in nature, therefore to increase an expense, the T-Account needs to be debited

An expense has a Dr balance in nature, therefore to decrease an expense, the T-Account needs to be crebited

Class Activity

Put the account names into the appropriate columns: – Accounts payable – Accounts receivable – Advertising expense – Cash at bank – Drawings – Owner’s capital – Depreciation expense – Equipment – Land & building – Mortgage payable – Sales income – Supplies – Wages

Balance sheet Income statement

Asset Liability Equity Income Expense

Learning Objectives

1. Describe the accounting information used to record, classify and summarize transactions, including the use of the accounting equation.

2. Outline the rules of debit and credit used in double-entry accounting and how to apply these rules in preparing journal entries.

3. Identify and prepare the different types of adjusting entries.

Journal Entries

How to Journalise?

1.Identify transaction from source documents.

2.Specify accounts affected. 3.Apply debit/credit rules. 4.Record transaction (with description).

What does a journal entry include?

1. Date of the transaction. 2. Title of the account debited. 3. Title of the account credited. 4. Amount of the debit and credit. 5. (A description of the transaction). 6. Dollar signs are omitted.

What is the purpose of a journal?

1.It provides one place to keep a complete record of all transactions as they occur in a chronological order of the date.

The following transactions occurred for KGS Ltd : July 2 Paid gas expenses for $350. July 5 Purchased equipment on credit $2300. July 10 Performed service for a client on credit $3000. July 12 Borrowed $8500 cash, signing a loan payable. July 19 Sold for $30000 land that had cost this same

amount. July 21 Purchased supplies for $700 and paid cash. July 27 Paid the liability from 5 July.

Journalise the necessary entries for the above mentioned transactions.

Class Activity Recording business transactions

Solutions to Class Activity Journal

DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT Ju l

2 Electricity and gas expense 350

Cash 350 5 Equipment 2 300 Accounts payable 2 300 10 Accounts receivable 3 000 Service revenue 3 000 12 Cash 8 500 Loan payable 8 500 19 Cash 30 000 Land 30 000 21 Supplies 700 Cash 700 27 Accounts payable 2 300 Cash 2 300

The Arid Sands Golf Club was opened for business on 1 July by Todd Simpson. The following selected events and transactions occurred during the first month of operations.

July 1 The owner invested $2 500 000 cash into the business. July 3 Acquired the business of Jeffrey’s Golf World for $1 800 000 cash. The price consisted of land $1 000 000, building $650 000, and equipment $150 000. July 6 Advertised the opening of the golf course, paying advertising expenses of $36 000 for a major television campaign. July 10 Paid cash $36 000 for a 1-year insurance policy. July 18 Purchased new golfing equipment for $60 000 from Rory Golfing, payable in 30 days. July 19 Received golf membership fees of $22 000 in cash.

Class Activity

July 25 Sold 200 coupon books for $400 each. Every book contains 10 coupons each of which entitles the holder to one round of golf.

July 27 Simpson withdrew $10 000 cash for personal use.

July 29 Paid wages of $12 600. 30 Paid Rory Golfing in full.

July 31 Received $12 000 cash for golf fees.

Required Prepare general journal entries for the month of July, using appropriate account titles. Ignore GST

Class Activity continued

Learning Objectives

1. Describe the accounting information used to record, classify and summarize transactions, including the use of the accounting equation.

2. Outline the rules of debit and credit used in double-entry accounting and how to apply these rules in preparing journal entries.

3. Identify and prepare the different types of adjusting entries.

Adjusting Journal Entries

• The application of matching principle and the accruals basis of accounting give rise to the need for adjusting entries.

• This need arises because of timing of cash flows which do not coincide with the accounting period in which it is appropriate.

Class Activity

Explain why accrual accounting provides more complete information than cash basis accounting.

Five Categories of Adjusting entries

• e.g.rent prepaid, insurance prepaid Prepaid expenses

• e.g. wages payable, electricity payableAccrued expenses

• e.g. payment received for services not completeUnearned revenues

• e.g. payment not received for completed servicesAccrued revenues

• e.g. non-current asset purchased and expense recognised over timeDepreciation

Journalise any necessary adjusting entries for ABL Ltd in the General Journal at 30th June 2019. Explanations/Narrations are NOT required.

1. On the first of April paid rent in advance for 12 months, $15,000. 2. Received $4,000 Fees in Advance on 1st March 2018. At the 30th 25% of the work has been completed. 3. Employee Salaries owed for Monday to Wednesday of a five-d ay working week; the weekly payroll is $12,500. 4. Depreciation for one month on Office Equipment costing $5,000 with a salvage value of zero and a useful life of 10 years. 5. Interest expense accrued $1,300

Class Activity

Class Activity Hui Yu, lawyer, had the following transactions related to the business during June. Ignore GST

June 1 Purchased office furniture for $36 000. The furniture will be depreciated over a useful life of 10 years at which time it is expected to have a residual value of $4800.

June 1 Purchased a 12-month fire insurance policy for $3000.

June 2 Borrowed $42 000 from the Eastern Bank on a short-term loan. The principal, plus 8% annual interest, will be repaid in 3 months.

June 11 Purchased supplies for $450. On 30 June, supplies worth $230 remained on hand.

June 15 Paid $1200 for 1 month’s rent for the period 15 June to 15 July.

June 18 Received an electronic bank transfer from a client for $840 as an advance payment for services to be performed. Only 20% of the work was completed by 30 June.

June 28 Received an invoice for $410 for telephone and internet charges for the month.

Required: Prepare the journal entries to record each transaction and prepare any adjusting entries as at 30 June, the end of the accounting year.

References

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., Tan, R. and Willett, R., (2012) Accounting. 7th edn. Australia: Pearson Higher Education, pp.52-91.

Hoggett, J. , Medlin J., Chalmers K., Beattie C., Hellmann A. and Maxfield J., (2018) Financial Accounting 10th edn. Australia: John Wiley, pp.138-194

ACC203?Financial Accounting 2
Slide Number 2
Inter-teaching Workshops
Academic misconduct
Plagiarism
Collusion
Contract Cheating
Any questions?
Learning Objectives
Class Discussion
Learning Objectives
Accounting Equation
Accounting Equation
Accounting Equation
Why is the purpose of the accounting equation?
Class Activity
Learning Objectives
Double Entry System
T- Account
Rule of Thumb – Double Entry System
Rule of Thumb – Double Entry System
Rule of Thumb – Double Entry System
Rule of Thumb – Double Entry System
Rule of Thumb – Double Entry System
Class Activity
Learning Objectives
Journal Entries
Recording business transactions
Solutions to Class Activity
Class Activity
Class Activity continued
Learning Objectives
Adjusting Journal Entries
Class Activity
Five Categories of Adjusting entries
Slide Number 36
Class Activity
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